Thursday, July 03, 2014

Small Business Outlook

Our hardware store is feeling the pinch.  While the government and University of Michigan are reporting consumer confidence on the rise, our summer season is way off so far.  We lack the cash flow to replenish our second hand furniture, because the tourists have not come this year. 

Our business friends around us are also feeling the pinch. 

The drug problem in our area is bad.  People on drugs cannot produce mentally or physically.  They have little money to spend except for drugs.  The food pantry is inundated with demand, and the problem is growing in the 20 year olds in our county.   Of course, when the drug disease is among so many, petty crime increases. 

While the employment report came in showing large gains, the real truth in our county is people are no longer in the labor force.  The report that was so stupendous also shows that people NOT in the labor force has risen to new records. 

In addition, the report also showed the average weekly earnings down from May.  On a real basis, wages are declining once again when accounting for inflation (where inflation comes from the government numbers).  This is now three months in a row where that has occurred.

I suspect (but cannot prove) that the loss in wages would be worse except for state after state putting in higher minimum wage. 

For our businesses that rely on local consumer purchasing, all the "good news" will not translate into additional sales. 

Summary: 

1.   Yesterday I suggested the market had no real impetus for direction.  Then the ADP labor report came out. It was stupendous as an indication the labor market is not only improving, but improving immensely.  The Employment Situation Report from the USA government also shows huge employment gains.  As noted, the labor participation rate is increasing, and wages are actually dropping if adjusted for inflation. 

2.   China announced during their business hours, China's foreign exchange rates for the renminbi / yuan against the US dollar would be set at market demand rates.  The banks in China will use market demand to set the rates.  When will the People's Bank of China actually float the currency?  Soon I would surmise.  It looks like the economists and pundits who pronounced China has major economic problems, may be on the wrong side of China's economic ability.  Ultimately, the plan is to replace the US dollar as the reserve currency, with the first step using a basket of currencies to replace the dollar. 

3.   The S&P500 and DOW are in nose-bleed territory as it sets new historical highs in the future markets before the opening in NY. 

4.   Go back and review the charts when the S&P 500 has a big move in the pre-opening.  A very high percentage of the time, the market will be choppy once it opens.  However, this is the last day of trading before the holiday.  Volatility (measured by up and down ranges) could be very high indeed as the volume could allow large-cap traders to move the market at will.  Look for a choppy day.  Be very careful as a trend or momentum trader.  Those traders will have to be fast.