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Talking Points: Big data but little change

We had a busy week on the economic and market front. The highlights were i) indifferent earnings from US companies ii) a weak GDP report iii) an inconclusive Federal Open Market Committee (FOMC) meeting iv) a bear squeeze on gold and v) pressure on Emerging Markets. What caught our eye is the ongoing struggle to raise growth. The Fed talks about signs of broader recovery but the year over year numbers have struggled to reach much above 2.5%. Here’s the picture, with the post-crisis growth never rising above the 1985-2005 average.

Talking Points Chart 1

And on Friday, we saw the Employment Cost Index, which shows wages taking a sharp downturn (that’s the drop off on the right of the graph shown below).

Talking Points Chart 2

Putting all this together, we see slow, unspectacular US growth with deflationary pressure from most leading inflation indicators. Remember the Fed tracks two targets: employment and inflation. And there seems very little pressure on the inflation front.

Bottom Line: equities may track sideways for a while; domestic US bonds have proved remarkably steady and will probably remain so.

-- Brouwer & Janachowski, LLC

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Advisor cannot guarantee the accuracy or completeness of any statements or numerical data in this commentary. Past performance is no indication of future results.