The summer ended not with a bang but with a whimper, at least on the stock market. The Dow was down more than 5 percent during August. For the three months between Memorial Day and Labor Day, the markets were essentially flat.
Of course, all three major indexes are still way up for the year, and they’ve more than doubled in the past four years. The question is: Was this summer a breather, or the beginning of a breakdown? It’s too early to tell, but there’s little question that concern over the actions of the Federal Reserve, and not economic fundamentals, caused the downward drift in the markets. For most of the summer, when the economic news was good, the markets would go down, as speculators did what speculators do: They speculated. They bet that the stronger the economy, the quicker the Fed would taper and end its $85 billion a month bond-buying scheme.
Then came Syria, and the market became the dog with two tails. Normally, when an international crisis breaks out, stocks retreat and gold and oil advance. And that happened for a day or two, but the rise in oil prices actually helped some energy companies. Wall Street traders, now back to full strength following summer vacation, flooded into the markets, turning the crisis into little more than a buying opportunity.
And if an economic dog with two tails isn’t enough, consider this: Congress is now back in session. The national debt now exceeds the nation’s gross domestic product, and—according to the Heritage Foundation—federal government spending is now 21.5 percent of GDP. That means K Street lobbyists now affect the economy as much as Wall Street traders, creating a mutt only Dr. Frankenstein could love.
Despite some positive signs in the economy, the employment picture doesn’t seem to be getting better. Weekly initial jobless claims have been below 350,000 for most of the summer. That’s a number that most economists say will generate new jobs. But if that’s true, where are they?
The Labor Department’s August report, released Sept. 6, said the economy had created an underwhelming 170,000 new jobs. The same report revised downward—dramatically—both the June and July numbers, so we don’t know how much confidence we can have in the August number.
The bottom line is that the unemployment rate was essentially unchanged. The latest report does, however, show plainly that—despite some punditry to the contrary—education matters. The unemployment rate for college-educated adults over the age of 25 is a miniscule 3.5 percent. —W.C.S.
There’s a boom in the auto industry. Ford posted August sales 12 percent above a year ago for its best month since August 2006. GM did even better, reporting a sales jump of almost 15 percent. Nissan sales were up 22 percent, for that company’s best August ever. Toyota beat them all, surging nearly 23 percent. LMC Automotive, an industry consulting firm, said total U.S. sales last month were close to 1.5 million, about 12 percent higher than a year ago.
It’s not unusual for August sales to be strong. Dealerships cut prices to clear their lots for next year’s models, and construction companies and their employees, flush with summer cash, boost the truck market. Adding to the boom this year: The Great Recession motivated many of us to hold on to our cars longer than normal. The average age of a vehicle on the road today is now about 11 years, a record high, but many of these cars need replacing. And interest rates are historically low, but creeping upward, causing some to think that the time to buy is now.
Given these special circumstances, will this showroom traffic jam last? Analysts think so, predicting total U.S. sales this year to top 16 million. —W.C.S.