ARBOR OUTLOOK: Jobs report, Janet Yellen and Dan Jenkins

“It’s too hot to fish, and too hot for golf.”

— from “Too Cold at Home,” as performed by Mark Chesnutt

During his high school years, my older son spent most of his free hours on the golf course. At night, he often read about the sport.

Occasionally he would share a snippet or two. One story in particular, written by Dan Jenkins, has stuck with me. Seems a fictional pro golfer, one of Jenkins’ characters, was playing a tournament in Scotland and utilizing the services of a local caddie. The player faced a difficult putt and asked if the ball was likely to break left or right. The caddie turned to the pro and answered, “Aye, it’s a bit of a lottery, lad.”

I’ve always loved that answer. So many things are like that, aren’t they?

Take the economy. GDP growth was reported at only 1.2 percent last quarter, down from 2 percent in the first quarter of the year. Conversely, 255,000 jobs were created last month. So is the news good or bad? Economists, like the Scottish caddie, are unsure, but are erring tentatively on the side of good news.

GDP growth is more likely to follow a strong payroll report than vice versa. Here’s why. If job creation is on the upswing, more discretionary dollars are likely to be injected into the economy through more consumer spending on homes, cars, appliances, travel, entertainment, you name it. When inventory is moving off the shelves, manufacturers are compelled to produce more goods. Thus, more houses are built, businesses order more supplies and, theoretically, more employees are hired to make, deliver and sell them. So the cycle comes full circle: more jobs mean more discretionary income, which means more spending, with companies hiring more employees to meet those consumer demands. And that ultimately can translate to greater growth in GDP.

If employment is strengthening, why then isn’t the overall economy also improving? CEO’s remain reluctant to invest in the future, having seen their profits shrink for several consecutive quarters. Anemic global growth isn’t inspiring companies to invest in infrastructure, technology and other capital expenditures. These outlays cost a lot up front but typically offer long term benefits. Instead, companies are ramping up hiring, which is not viewed as a permanent investment. Employees can be laid off if need be. Infrastructure investments require a lengthy financial commitment.

Federal Reserve Chairwoman Janet Yellen will make a public statement regarding the economy later this month and is evaluating the contradictory economic signals in the meantime. Interest rates were raised by 0.25 percent last December, the first hike since 2006. With mixed data reports, the question becomes will they be raised again in this calendar year? You knew this was coming, right? It’s a bit of a lottery.

Margaret R. McDowell, ChFC, AIF, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.