April 25, 2018

The Economy? Improving But Fragile: Handle With Care

Excerpt:

The latest jobs report may not have hit growth targets, but the figures for the first quarter continue to reflect a strong economy. There may be some signs, however, that the U.S. economy is not as strong as it was in the past.

Article:

According to the latest jobs report, the labor market remains strong. The recent employment figures may not have lived up to expectations, but they are still consistent with a healthy economy. However, there are signals that the U.S. economy is not foolproof. Lenders may want to take this opportunity to re-assess their portfolio risk to ensure the best possible returns for current market conditions.

The latest job report reflects that the U.S. economy is still growing. 

Latest Jobs Report Signals a Strong Economy

The Labor Department released its March employment figures on April 6, which were a disappointment for some but only in relation to the fact that the figures missed some overly-optimistic estimates. In short, the U.S. added 103,000 jobs in March, which is a marked reduction from the 326,000 jobs added during the prior month. The reduced number could be due to bad weather during much of the month.  The unemployment rate remains the same, which means that the labor force itself shrunk.

On average, the U.S. has added 202,000 jobs per month during the first quarter of the year. The blip in February was due to a surge in Americans either working or looking for work, much of which held steady during March. Taken together, these figures are a strong indicator that the U.S. economy remains in sound shape. 

There also isn't any hint of inflationary pressure. Over the past year, average hourly earnings have risen just 2.7 percent, so the Fed is unlikely to take any action that will put the brakes on current monetary policy. There are signs, however, that the economy could be somewhat fragile. 

Some Potential Signs of Economic Trouble

The recent job figures take the wind out of the sails of many claims that the current economy is "booming." Instead, we are continuing to see some steady improvements. When the Commerce Department releases its estimate of first-quarter growth in GDP in a few weeks, we will see if it tops the estimates that range from 1.5 to 2.3 percent. 

Unfortunately, other factors could significantly impact the economy going forward. In theory, President Donald Trump's new tariffs on China and metals are supposed to be a boost to the economy. In practice, the Tax Foundation believes that these moves will harm the economy as well as cost thousands of American jobs. 

The Federal Reserve is also promising to continue with its hawkish stance, by increasing interest rates roughly three more times this year to ward off potential inflation. Even so, the Fed will continue to watch the job and wage growth figures before deciding on its next move. 

When there are economic warning signals, it's a good idea to re-assess your company's risk.

The Perfect Time to Speak to a Whole Loan Broker

The numbers may be encouraging on some levels, but the volatile stock market so far in 2018 is proof that our economy is far from invincible. As the Fed Chair prepares for addition jumps in interest rates this year, this is the perfect opportunity for lenders to re-assess their loan portfolios for risk and return.

Garnet Capital's loan sale advisory services can help banks create the strongest loan portfolio for current conditions by facilitating the purchase and sale of nonperforming or underperforming assets. Sign up for our newsletter to receive our market updates and learn more about how a loan sale advisor can help your business.