MONEY Economy

5 Reasons Cheap Gas Isn’t Fueling Consumer Spending

Getty Images/Tom Merton

Why you're just not feeling that confident.

The American consumer is difficult to figure out these days.

We currently enjoy substantial, if not strong, tailwinds. Despite a recent hiccup, employment numbers are improving, and wage growth has (kinda sorta) started to kick in. While gas prices have crept up a bit lately, drivers will most likely spend hundreds less at the pump this year than last. And a strong dollar has improved our purchasing power overseas.

Nevertheless, Americans are not translating these positives into more spending—except perhaps at bars (more on that below). And readings of how people feel about the economy and their stake in it are all over the map.

To demonstrate, here’s a snapshot of how consumers are behaving in five key areas:

Spending Is Flat

Last week the Commerce Department announced that retail sales were flat in April, and up only 0.9% from the year before. That’s the smallest year-over-year increase since the fall of 2009. The economy struggled in the first few months of 2015, with GDP increasing by just 0.2%, which economists blamed on, among other things, severe winter weather. But the poor retail figures in April make the bad weather theory a bit less compelling.

One area of the economy that’s seeing lots of cash? The service sector. Spending at bars and restaurants has boomed lately. “It is clear that this is the place where U.S. consumers are spending some of the money they are saving by buying cheaper gasoline,” per Wells Fargo Securities senior economist Eugenio Alemán.

Saving Is Up

In the years leading up to the financial crisis, Americans’ personal savings rate—a ratio of savings to disposable income—bounced between 2% and 3%. These days it’s up to 5.3%. Moreover, household debt relative to GDP has fallen dramatically since the end of the recession. My spending is your income, and vice versa, so more savings and less debt can limit wage growth for workers.

Confidence Is Iffy

All of the above has led to a lot of noise when it comes to gauging the economy’s animal spirits. Consumer sentiment recently hit a seven-month low, as the initial cheap gas sugar high faded. Gallup’s economic confidence index has dipped lately, too, and rests in negative territory. That said, surveys show substantial improvement from a year ago. A recent Bankrate poll, for example, found that only 16% of Americans say their financial situation has deteriorated over the past 12 months, down from 35% in August 2011.

And while you’re paying more at the pump than a couple of months ago, prices are still much lower than last year. The Energy Department estimates that you’ll spend almost $700 less in gasoline, making this summer look to be the least expensive for car travel since 2009. That should boost household confidence a bit.

More People Are Quitting

Though the quit rate has held relatively steady this year, people are quitting their jobs at much higher rates than in the years following the recession, which suggests they are feeling good about their ability to land a new gig. With good reason: The jobs picture is pretty healthy despite a lackluster report in March. Employers have added roughly a quarter-million jobs a month since 2014, and the unemployment rate has dropped to 5.4%. Still, for many people there’s one major thing holding them back.

Wages Are Stagnant

What’s missing is wage growth. Median household income is still well below pre-recession levels, and wage increases have hovered around 2%, which is only slightly more than inflation. That’s pretty abysmal, so it’s not difficult to see why households might be cautiously optimistic in the face of good news—i.e. lower gas prices.

One silver lining can be found in a gauge called Employment Cost Index, which measures benefits as well as salary. The ECI rose 2.6% in the first three months of 2015 compared with 12 months ago. Per the Labor Department, that’s the best showing since the end of 2008. While it’s still in the early days, workers may be in for the raises they so desperately need.

MONEY First-Time Dad

The 3 Things All Millennial Parents Should Be Saving For

Luke Tepper

MONEY writer and first-time dad Taylor Tepper asks some financial pros for help prioritizing his competing financial goals.

No one aspect of parenting is in itself particularly difficult.

What makes it the hardest thing I’ve ever done in my life, however, is that one discrete task continuously leads into another and another, until you’re ground down and raw. Bedtime follows a bath, which follows dinnertime, which follows a walk, which follows a trip to the playground, which follows…which follows…which follows…

It’s exhaustion by a thousand baby steps.

Family budgeting presents a similar Sisyphean sequence. I know I should have a healthy emergency fund and contribute up to the match in my 401(k) and save for Luke’s college education. But in which order? And how am I supposed to do those things while also paying for child care, Brooklyn rent and the occasional whisky ginger?

Each financial responsibility can be fixed easily enough. In aggregate, though, it’s nearly impossible to see the forest through the trees.

One of the small advantages of reporting on personal finance, however, is that financial planners will take my calls and answer these questions for me for free. So I took advantage. What I learned may help you, too.

First: Start On Emergency Savings

“Emergency savings is about avoiding an immediate cash flow problem,” says Leesburg, Va.-based financial advisor Bonnie Sewell. “It’s the number one thing you should focus on.”

Here’s why, she explains: Without a sufficient rainy-day fund, your family is vulnerable to the vicissitudes of life (see: layoffs and car repairs and illnesses).

Now for the scariest part. Depending on your obligations and savings, and from whom you solicit advice, you should have anywhere from three to 12 months worth of expenses sitting in a bank account.

That’s madness. Between child care, rent, transportation and food, we spend at least $4,500 a month, or more than $50,000 a year. I can’t envision a world where I have $50,000 in cash, much less putting it to no use in a near-zero-rate savings account.

Pensacola, Fla. financial planner Matt Becker helped quell my panic.

He recommends tackling emergency savings in two steps: First, get about a month’s worth of expenses stowed away and then turn my attention to other priorities (see below). After I’ve found firm footing with those, I can try to build up my fund.

Next Step: Get a Start on Retirement

The next thing for me to consider is retirement.

Every expert I spoke with noted the costs of procrastinating on this one are significant. That’s because, by putting money aside for use at a later date, I’m giving up the power of compounding returns. To end up with $1 million in my 401(k) by 65, I’ll need to save almost $15,000 starting at age 30. If I wait to begin until I’m 40, I’ll need to put away around $23,500 more a year.

Of course, retirement accounts are illiquid by nature. They’re designed to reward people who wait to tap them until they’re nearing the end of their career.

Since I could also use liquid funds for things like a down payment on that house Mrs. Tepper hopes we’ll one day buy and savings for the college degree we hope Luke will one day get, Sewell says I should contribute up to my employer match and deploy the rest as follows…

Third: Set a Course for College

After I’m set up on retirement, Luke’s college savings comes into focus.

Everyone tells me to fund a 529, which allows me to invest tax-free so long as the money is used for higher education. I can also get a break on my state taxes. (Check out this article to see if you get a break on yours.)

As Melville, NY financial planner James J. Burns points out, every little bit I contribute for Luke’s college will go a long way.

For example, let’s assume that I contribute $200 a month and enjoy an average annual return of 8%. After 16 years, I’ll have amassed more than $73,000.

“That’s pretty darn good,” says Burns, who estimates that will go along way toward paying for two years of in-state tuition by the time Luke goes off to school.

Of course there’s a reason the 529 comes after retirement. “You can borrow money for college,” says Burns. “You can’t borrow money for retirement.”

Last: Grow Some Liquid Savings

Burns also recommends going over my budget annually, seeing if I can’t find more to save. If I do, I can divide that money between my emergency fund, retirement, Luke’s 529 and a taxable account through a portfolio of broadly diversified, low-cost funds for the house and our other goals.

Now that I’ve heard from the experts, I’m willing to take a more holistic approach as they suggested—patiently building up our anemic rainy day fund, contributing as much to our retirement accounts as we can afford, and making incremental additions to Luke’s college account. Whenever we earn a raise or unburden a significant cost like child care, we’ll judiciously target those extra dollars into the different buckets that will fund our lives.

But we’ll also set aside money for vacations and a few fancy dinners, even if that money could be leveraged elsewhere. The universe may be infinite, but our lives are short, and I intend to relish the occasional whisky ginger without pangs of guilt.

More From the First-Time Dad:

MONEY First-Time Dad

What Dads Can Do to Really Help Moms This Mother’s Day

Luke Tepper
The author's wife and son.

Hint: It doesn't involve flowers.

A recent survey found that more than three-quarters of adults would choose to celebrate Mother’s Day over Father’s Day if both parent appreciation holidays fell on the same day. I agree with the 78%, largely for the same reasons the participants in the survey enumerated. My wife spends countless off-work hours contemplating and anticipating our 14-month-old’s needs—Which foods can he consume? Which music classes should he attend? What is his room’s ideal temperature?—while my role is closer to that of Babe the Blue Ox.

On Mother’s Day people generally show their appreciation in the form of presents and attention. (The word “flowers” is searched more often in middle May than around Valentine’s Day.) Children prepare breakfast and write sweet cards, and the day usually ends with a picnic or a dinner in mom’s honor. For the past few weeks, multinational corporations have been utilizing all the screens that occupy my life to persuade me to buy their products. Last year I bought my wife a massage. This year I’m considering a scarf.

But there’s something a touch cynical, or at least incongruous, about Mother’s Day. Dads praise moms for the multitude of roles (breadwinner, caretaker, chef) they take on to help the family function, even as the guys don’t quite pull their own weight the rest of the year. So in addition to deciding between a rose-gold watch and white-gold earrings, dads should consider adapting their behavior in the following ways.

Pull your weight

Fathers today certainly contribute more to household responsibilities than their fathers did. In 1965, fathers spent 42 hours a week on the job and less than three hours on child care. Today’s dads look after the kids seven hours a week, and average 37 hours of paid work, per Pew Research Center. Moms tend to the kids for 14 hours a week, while averaging 21 hours on paid work.

When it comes to housework, dads put in about 10 hours a week compared with 18 for moms. Working mothers spend more time during the week on parental responsibilities that their husbands, and fathers even do less child care and housework on the weekends than moms. Dads still find the time to engage in more leisure activity. Eschewing a round of golf for babysitting duties should not be a headline-making event.

Support working moms

Only 12% of American workers have access to paid family leave, according the Bureau of Labor Statistics. By way of comparison, 26% of Americans believe in the existence of witches. Many pixels and column inches have highlighted just how much better other nations treat new families. (You can find a nice graphic here.)

Of course someone has to pay for this country’s insanely expensive child care. The average bill depends on where you live, with married couples in Colorado, for instance, allocating about 15% of their income to day care. Massachusetts parents fork over more than $16,500 a year. That’s around $2,500 less than in-state tuition and fees at UMass Amherst.

As child care costs have skyrocketed, women are leaving the workforce. In 1999, 23% of moms did not work outside the home. By 2012, that percentage had risen to 29%. And the average number of hours worked by mothers declined slightly between 1995 and 2011. The female labor force participation rate has dropped by about 3.5 percentage points over the past 15 years, now well below other advanced nations.

Meanwhile 60% of Americans believe that children are better off with a parent at home, per Pew. Mothers, and fathers for that matter, should stay at home if that’s what they feel is best for their family. But the idea that one choice is better than another strikes me as anachronistic. I for one am proud that Luke will grow up with a working mom.

I don’t mean to suggest that dads should spend mom’s Sunday engaged in a wonky debate about gender equality. But I do think that dads would do well to appreciate the disadvantages endemic to our society, and in the division of household chores. Its benefits may be longer lasting than flowers.

More From the First-Time Dad:

 

MONEY

One-Third of Americans Are Making This Silly Financial Mistake

blindfolded man
SuperStock

And it could cost them money.

Didn’t check your credit report this past year? Or ever? You’re not alone.

Despite having access to one free credit report a year from each of the three major credit agencies, 35% of Americans chose not to monitor their report, according to a survey released today by Bankrate.com. Two age groups particularly averse to ever requesting credit reports are senior citizens (44%) and millennials (41%). Moreover, about one-seventh of adults wait more than a year between credit checks.

Of course this is silly behavior. After all, you are entitled to a free credit report from TransUnion, Equifax and Experian, and can receive one by going to AnnualCreditReport.com. And a credit report is important: It’s a history of your interaction with all kinds of credit operations and is a guide by which your bank, boss, and others will gauge your ability to deal with debt. If you consistently pay your credit card late, or miss a mortgage payment here or there, that’ll show up on your report. Your credit score is derived from the information on your report, and your credit score helps to determine how much interest you’ll incur when you borrow money. So a mistaken report can cost you serious money. Errors are not altogether rare, per a 2013 FTC study, which found that 5% consumers had incorrect information on one of their credit reports.

To get a sense of how much mistakes can potentially cost you, check out this cost of debt calculator by Credit.com. A New York man in his late-30’s with fair credit will spend around $603,000 on interest payments over his lifetime. That same man with good credit will spend around $80,000 less. Mistakes on your credit report can lead to lower credit scores, and are likely to blight your credit history unless you take action. Which will be hard to do unless you check your report.

 

MONEY Economy

What’s Really Wrong With the Economy?

Striking trucker drivers and members of the International Brotherhood of Teamsters walk the picket line at the Port of Long Beach in California, United States April 27, 2015. Tractor-trailer drivers who haul freight from the ports of Los Angeles and Long Beach went on strike on Monday against four trucking companies, a Teamster union official said, in a move that could revive labor tension at the nation's busiest cargo hub. The port drivers accuse the trucking companies of wage theft by illegally misclassifying them as independent contractors, deducting truck-leasing charges and other expenses from their paychecks. The truckers are demanding to be reclassified as company employees with the right to union representation.
Bob Riha Jr.—Reuters Striking trucker drivers and members of the International Brotherhood of Teamsters walk the picket line at the Port of Long Beach in California.

The economy ran into trouble at the start of the year—again. Is this a sign of problems ahead, or was this just a case of the winter blahs?

For the second straight year, the nation’s economy hit a speed bump in the first quarter.

Gross domestic product grew at an annual rate of 0.2% in the first three months of 2015, according to the Commerce Department, after advancing 2.4% in 2014. Last year the economy actually contracted 2.1% in the first quarter before revving up later in the year.

Is the weak number just a blip that we’ve tended to see in the first three months of the year, or an ominous sign for the nine months ahead?

For now, economists are chalking some of this up to the bad weather this winter. Throw in labor strife in some of the country’s most important ports and the experts will tell you these are mainly short-term issues that will dissipate as time drags on.

“We do believe the negative effects from adverse winter weather and the disruptions due to west coast port strikes has resulted in a material negative impact on first quarter growth,” says Wells Fargo Securities senior economist Sam Bullard. “We’re having a repeat pattern of a soft first quarter. The expectation is that we’ll rebound.”

For the better part of the last 12 months, consumers have enjoyed a de facto tax cut in the form of dramatically lower gas prices, although prices have ticked up lately. Economists and policy makers had hoped that you would have taken that newfound cash and spent it on stuff. More spending results in higher wages, which have been lackluster for a while.

What did you actually do?

Well the personal saving rate has climbed the past three months from 4.4% to 5.8%, the highest in more that a couple of years. Spending, on the other hand, underwhelmed in the beginning of 2015, before rebounding in March.

The Conference Board’s consumer confidence index dropped 6% in April, well below expectations, and reached its lowest level since December. Another measure of consumer psychology, the University of Michigan consumer sentiment index, however, rose in April. Both gauges are much higher than one year ago.

The labor market has improved substantially, as 2014 was the best year for job growth since 1999.

Still, last month’s report showed that employers only added 126,000 positions in March and beefed up payrolls in January and February less than expected. Wages have only grown 2.1% compared to this time a year ago, barely above inflation.

Home prices rose slightly in February, after growing slightly in January, while existing home-sales jumped in March. Both increases, though, well outpace wage growth and inflation.

The economy has also undergone some recent unique struggles. Port truckers who service cargo in Los Angeles and Long Beach recently launched a strike. The labor dispute comes on the heels of a months-long strike by west coast longshoreman. Commercial building fell dramatically, per the Commerce Department, while residential construction increased slightly, thanks in large part to harsh winter conditions.

The sudden strengthening of the dollar hurt the bottom line of many U.S. multi-national corporations, and low oil prices reduced infrastructure spending and stymied employment in petroleum producing areas of the country.

One group paying especially close attention to the direction of the economy is the Federal Reserve, whose Federal Open Market Committee meets today to discuss interest rate policy.

In March, the central bank lowered its expectations for inflation and GDP growth. While most professional money folks think the Fed will raise rates in September, market events may intervene. Eric Stein, co-director of global income at Eaton Vance, warns against putting too much stock into GDP.

“It’s in the past,” says Stein. “We had a weak first quarter. So what? Who cares?” Rather than focus on the consequences of one-off issues like bad weather, investors should instead look toward the rest of the year. Stein is “cautiously optimistic.”

MONEY stocks

Why You Should Invest in Europe—Now

St. Petri's church, Bremen, Germany
JTB Photo—UIG via Getty Images St. Petri's church, Bremen, Germany

What the turning tide overseas means for your portfolio.

The last couple of years have proven to be rather miserable for international stocks.

From the beginning of 2013 to the end of 2014, equities around the world trailed the S&P 500 badly. One index that focuses just on European stocks lagged its U.S. counterpart by more than 13 percentage points annually.

This year, however, the rolls have reversed.

Despite ongoing fears over recessions and deflation in many parts of the world, total returns this year for both the MSCI EAFE index of developed-market stocks and the MSCI Emerging Markets Index have quadrupled the gains for the S&P 500.

What’s going on? And what should you do about it?

Viewed from one perspective, it may seem odd that European equities have performed so well. After all, Europe and Japan aren’t out of the economic woods just yet, and the U.S. has beaten its developed market peers in the last few years with regard to economic growth. Absolute levels, though, matter less than the trend.

“Remember that stock market performance does not closely track economic performance,” per Gregg Fisher of GersteinFisher. “Rather it is often more sensitive to the direction of economic change, shifting market sentiment and valuations.”

On that front, things are looking up abroad.

The massive $1.1 trillion bond-buying program undertaken by European Central Bank President Mario Draghi has started to bear fruit. Gross domestic product grew by 0.3% in the last three months of 2014, boosted by Germany and Spain, as commercial banks are starting to increase lending.

The slide in the euro’s value against the dollar has also made European exports more competitive, while low energy prices globally have put more money in consumers’ pockets. While consumer prices fell again in March, the fourth consecutive drop, the decline was smaller than previous months, while the unemployment rate slightly improved.

Risks still remain (see: Greece leaving the euro), but a slight glimmer of optimism has returned the eurozone. And this is a good thing for globally minded investors, especially those looking to buy inexpensive fare.

“As Europe begins its recovery, its stock valuations appear attractive compared to U.S. equities,” per BlackRock’s Heidi Richardson. The price/earnings ratio for U.S. stocks trades at 17.7, compared to 13.8 for Euro-focused MONEY 50 fund Oakmark International OAKMARK INTERNATIONAL I OAKIX -0.62% .

Look to Oakmark or another MONEY 50 selection Fidelity Spartan International FIDELITY SPARTAN INTL INDEX INV FSIIX -0.74% to gain exposure to Europe. A good rule of thumb is to allocate about one-third of your stock portfolio to international equities.

With Draghi committed to quantitative easing until fall of next year, and stocks still available at value prices, now’s the time for investors to truly embrace diversification.

MONEY credit cards

3 Things Millennials Need to Know When Choosing a Credit Card

hand choosing credit cards from a fan of cards
David Malan—Getty Images

Here's what young adults should consider when they finally bite the bullet and sign up for a credit card.

Today’s young professionals have a complicated relationship with credit. A report last year found that more than three in five millennials did not own a credit card, while another survey, by Creditcards.com, found that 36% of 18-to-29 year olds have never had one.

Millennials, of course, had the distinct misfortune of entering the job market during the greatest recession in generations, which may have made the prospect of borrowing less appealing, says Creditcards.com senior industry analyst Matt Schulz. Unemployment can make the task of paying off your monthly bill rather onerous.

Nevertheless, those in Gen Y who eschew plastic endure real costs that can make borrowing later in life that much more difficult. “Credit scoring models look at the age of your credit history,” says Credit.com’s Gerri Detweiler. “Specifically they take into account the age of your oldest account, and the average age of all of your accounts.” The earlier you start, the better your score will be. And a higher credit score can save you thousands over the course of your life.

If you’re ready to take the plunge, here are three things to consider when you pick and use your plastic. (These are also good reminders for those who already carry a card.) Remember, credit cards are tools and can dramatically improve your bottom line when used correctly.

1. Make sure you reap the credit

One chief benefit of receiving a card is proving to the world that you can be responsible with credit. However, if your lender doesn’t actually report your pristine credit behavior to a credit bureau, you won’t get the benefit of a higher score. “Ensure that your card reports account activity to the three major credit bureaus—which it should if it’s issued by a major bank and is a Visa, Mastercard, or American Express card—so that this first card can help build a credit history,” says Ben Woolsey of CreditCardForum.com. You can confirm this with your lender before you sign up for the card.

2. Skip the annual fee

“Get a credit card with no annual fee, since the first card you will get will be the card you keep the rest of your life to maintain a long credit history,” says Nerdwallet.com’s Kevin Yuann. The point here is that you don’t want to be penalized for establishing credit. But when you finally get that more elite card, don’t get rid of the original. “As you start to qualify for better rewards, keep a phone bill or something recurring on automatic payment on this card to ensure it doesn’t get canceled,” Yuann advises.

3. Pay your bill

“Many millennials incorrectly focus on the potential interest rate when shopping for their first card,” says CreditSesame.com’s John Ulzheimer. “This underscores a larger problem, which is that they are thinking about the cost of carrying a balance before they’ve even used their first card.”

Instead Ulzheimer recommends you consider other factors, like potential credit limit. (Aim to spend roughly 10%-20% of your monthly limit in order to optimize your score, which is a bit easier with a higher limit.) “Using the card only to the extent that they can pay off the balance in full each month makes the interest rate irrelevant.”

Still, credit cards are useful in cases of emergency, and sometimes you may find yourself with a revolving balance. That shouldn’t stop you from contributing something to your debt, says LowCards.com’s Bill Hardekopf. “Even if you can’t pay off the entire balance, it is critical to make the payment on time every single month. If not, this will significantly damage your credit score. That is something that will haunt you on future loans,” such as for a car or house.

Need help figuring out which card is right for you? Check out MONEY’s credit card matchmaker tool.

Read next: MONEY’s Best Credit Cards

MONEY

Why Millennials Are in for a Worse Midlife Crisis than their Parents

senior man in motorcycle gear
Henrik Sorensen—Getty Images

Marriage, it turns out, lessens the dip in happiness that happens in one's late 40s. But most Gen Y-ers have steered clear of the altar.

I’m a happily married 28-year-old with a beautiful wife and son. My life is good.

But if research is correct, I will grow increasingly more dissatisfied with my life over the next 20 years. Which is terrifying.

The midlife crisis is very real.

Studies show that people are pretty happy when they’re young and when they’re older—thank youthful exuberance and not having to work, respectively. But between 46 and 55, folks endure peak ennui.

That happiness ebbs as one ages is not particularly surprising. Careers plateau, dreams are deferred and bills increase in quantity and frequency.

This U-shaped happiness curve has been the focus of a lot of research recently and many nations (from Britain to Bhutan) have shown interest in augmenting citizens well-being with the intent that gross happiness is just as important to the economy as the gross domestic product.

One recent study on the topic—published in the National Bureau of Economic Research—has me feeling just a little bit less sad about my upcoming depression. It found that married folks like myself will experience a less dramatic midlife crisis than their non-married peers.

Authors Shawn Grover and John Helliwell used data from two U.K. surveys and found that while life-satisfaction levels declined for those who married and those who didn’t, the middle-age drop was much less severe for the betrothed, even when controlling for premarital happiness.

Having a dedicated partner, it seems, eases the burden of watching your youth pass slowly through your fingers. Tying the knot can soften the blow, in the other words.

Moreover, people who consider their partner a friend enjoy the most happiness.

“We explore friendship as a mechanism which could help explain a casual relationship between marriage and life satisfaction, and find that well-being effects of marriage are about twice as large for those whose spouse is also their best friend,” the authors wrote.

These findings could leave many of my peers in an emotional nadir: According to data from the Pew Research Center, millennials just aren’t terribly interested in the institution of marriage. Only 26% of people aged 18 to 32 were married in 2013—10 points lower than Gen X when they were of a similar age in 1997, and 22 points below boomers’ marriage patterns in 1960.

My generation still has a few years before they hit the bottom of the U curve. And perhaps an improving economy will make the prospect of marriage more attractive to those in my cohort. Here’s hoping.

I didn’t plan to marry when I did—like most of my generation the thought really didn’t occur to me. But my longtime girlfriend and I walked down the aisle after we found out she was pregnant. And from my current pre-midlife-crisis vantage point, I can see why marrying someone I love and with whom I share a common worldview will make the process of aging slightly less pale and ugly.

Life’s hard, but it turns out that it’s nice to have someone you love to complain about it with.

More From the First-Time Dad:

MONEY currencies

Why the Strong Dollar Hurts Investors and What They Should Do About it

Johnson & Johnson products
John Raoux—AP Johnson & Johnson products

The strong dollar is hurting some multi-national corporations. That doesn't mean you should do anything.

Johnson & Johnson endured a difficult first quarter. Profits at the healthcare behemoth declined by almost 9%, and the company lowered earnings projections for the rest of the year.

Part of the blame went to poor sales of a particular hepatitis drug. But J&J also took a hit from something that its executives can’t in any way control: foreign exchange.

Over the past 12 months, the U.S. dollar has gained against every major currency, according to data from Bloomberg, including more than 20% against the euro.

That can be pleasant for American consumers and travelers, whose dollars can suddenly buy more imported goods and stretch further when spent abroad in places like Europe.

But a strong dollar can also have negative consequences, and the losers include multinational American companies like J&J that sell goods overseas, where American exports are suddenly more expensive than before and thus less competitive. Indeed, currency fluctuations sliced the company’s earnings by 7.2%.

What’s more, there’s reason to believe this kind of impact will be felt across the U.S. economy. The International Monetary Fund recently projected that currency effects would decrease U.S. economic growth this year by half a percentage point, to 3.1%.

In light of all this, investors may be wondering if they should make some changes to their domestic stock portfolio, perhaps lightening up on companies with lots of international business. Here are two reasons to hold off.

The Strong Dollar Is Already Baked Into Stock Prices

Intelligent folks can disagree on the efficient markets hypothesis, which holds that share prices always reflect all relevant information. But at least some of today’s currency issues are already cooked into company stock prices.

In other words, it’s probably too late to avoid the negative currency effects—and selling now might mean missing out when the currency pendulum swings the other way. You can see that in Johnson & Johnson: While the company’s numbers look bad on paper, they actually outperformed analysts’ expectations. The company’s stock was unchanged yesterday, and is actually up a bit over the past month.

That’s also true of the broader U.S. stock market: The S&P 500, which collectively takes in about half of its revenue from overseas, is up almost 2% so far this year.

Moreover, Europe won’t stay on its current economic path forever. Eventually the economies of its member nations will improve, the European Central Bank will stop buying bonds, and interest rates will one day rise. When that happens, demand for euros will increase.

The Dollar Won’t Stay Strong Forever

One reason the greenback has performed so well against other currencies is that our monetary policy looks downright hawkish by comparison. The Bank of Japan and the European Central Bank are holding down interest rates and buying up bonds in an effort to lower interest rates, stimulate spending, and improve economic growth. If that plan sounds familiar, that’s because the U.S. Federal Reserve spent years doing the same thing. These days the conventional wisdom is that the Fed will start to raise rates this summer or fall, thereby making dollars more desirable.

But the conventional wisdom isn’t always right—and in fact economic data over the past couple of weeks has revealed some weakness in the U.S. Last month’s jobs report showed employers adding fewer workers than expected, while retail sales underperformed as well. And while a plurality of economists polled by Bloomberg couple of weeks ago estimated that the Fed would raise interest rates in June, the most recent poll shows that a majority now think that increase won’t be announced until September. As a result, the dollar has actually underperformed the yen, euro and pound over the past month.

Which all means that you can be made to look silly by trying to time the market.

“From the prospective of individual investors with an intermediate to long-term time horizon, you shouldn’t be focused on the dollar,” says John Toohey, head of equities at USAA Investments. “It all tends to even out over time.”

MONEY Jobs

March Jobs Report Disappoints

150403_EDM_jobs_1
Getty Images

A government report shows that the labor market struggled. What does that mean for your salary?

After months of impressive gains, employers slowed down hiring last month.

Employers added 126,000 jobs in March, while employment gains for January and February were revised down. Over the past three months, businesses have increased their payrolls by 197,000 workers a month. The unemployment rate held steady at 5.5%.

Hourly earnings, however, were a positive, rising 0.3% last month. Workers have seen a raise of 2.1% over the past 12 months, though, which is barely keeping pace with inflation.

Federal Reserve Chair Janet Yellen promised in a press conference last month that “we will be looking at wage growth,” adding that “we have not seen wage growth pick up.” A lack of sustained, accelerated wage growth is one reason the Fed has kept short-term interest rates near zero since the recession.

There have been other disappointments in the economy. As the dollar has strengthened against the euro, American exports have become less competitive in the global market place at the same time that economic weakness in Europe, China and Japan have reduced demand for U.S. goods. U.S. companies are starting to take it on the chin. According to S&P Capital IQ, large corporations are expected to see a 3.1% quarterly earnings decline in the first three months of 2015, the first drop since 2009.

Meanwhile U.S. productivity, measured by the growth of services and goods produced per hour worked, declined 2.2% in the last quarter of 2014.

“Wage growth will ultimately be constrained by productivity as employers cannot let paychecks increase faster than hourly output growth for years on end,” says Jack Ablin, chief investment officer for BMO Private Bank. “While job growth is the most important barometer of economic success, healthy wages play an important supporting role. Until productivity picks up, wage gains will likely be constrained.”

James Paulsen, chief investment strategist at Wells Capital Management, points out that productivity has only grown 0.8% annually in the last five years, compared to a post-war norm of 2.4%.

What’s holding productivity back? “The problem has been a lack of investment spending,” says Paulsen. Since the recession, the private sector “has been noticeably reserved with capital spending plans. Moreover, as a percent of GDP, real public sector investment spending has been declining steadily since 2010, falling recently to a 65-year low.”

Corporations aren’t going to invest unless there’s a demand for its products, which has been muted as U.S. consumers have spent the past half decade or so dealing with debt. Government spending has been limited due to sequestration.

Whether or not the Federal Reserve will tighten monetary policy by raising interest rates before the end of the year, while key employment indicators lag, remains to be seen.

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