The Markets 

You say to-may-to. I say to-mah-to.

You have to be a careful reader to keep up with the Federal Reserve these days. Last week, the Fed re-characterized the pace of economic growth in the United States from 'moderate' to 'modest.' According to Wall Street Journal blog, Real Time Economics, "economic data show that 'modest' is a touch weaker than 'moderate.'" No matter how you parse the difference, it was enough to prevent the Fed from beginning to normalize monetary policy by cutting back on bond buying.

The Fed indicated that labor market concerns were a key reason for continuing quantitative easing (QE) at current levels. Investors at home and in emerging markets appeared to think that employment concerns and less robust economic growth in the United States were okay, as long as quantitative easing continued. Major U.S. stock markets finished the week higher, while stocks in commodity-driven emerging countries, and those with significant current account deficits, also moved higher, in general.

Americans looking for good-paying jobs may be less enthusiastic about the reasons for the Fed's constrained outlook. According to The Daily Ticker, a recent analysis found that almost two-thirds of the jobs created during the first half of 2013 were in the lowest paying sectors of the economy, and provide income of about $15.80 an hour, on average. When you multiply that hourly rate by 2,080 (the number of hours in fifty-two 40-hour work weeks), it comes out to about $32,000 a year. That may help explain why the median household income in the United States has fallen from about $54,500 in June 2009 (the start of the current economic recovery) to about $52,098 in June 2013.

Here's another interesting difference to ponder as you think about the near future - a future in which many expect China to be an important growth engine. Last week, that country's manufacturing purchasing indexes were released.  The official Purchasing Managers' Index (PMI), which includes bigger firms, rose to 50.3 in July from 50.1 in June. Any reading above 50 indicates expansion. The unofficial index, compiled by Markit and HSBC index, which tracks smaller firms, fell to 47.7 from 48.2 for the same period. Any reading below 50 indicates contraction.

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

YOU'VE SEEN 'EM - TELEVISION MAKEOVER SHOWS LIKE WHAT NOT TO WEAR AND THE BIGGEST LOSER. By the end of the installment or the series, lives have been changed, presumably for the better. It remains to be seen whether Europe's current makeover - a migratory one - will change lives for the better.  

Unemployment is a key issue behind Europe's makeover. According to Eurostat, unemployment in the EU-27 was at almost 11 percent in June 2013. That was slightly lower than May of 2013, but higher than June of last year. When you delve deeper into Europe's unemployment, it's clear that the problem is more pronounced in periphery countries, which typically are southern European. In March, unemployment in Germany (a core country) was about 5 percent, while in Greece and Spain (periphery countries) it was almost 27 percent.

Among younger populations, unemployment is even higher. In February 2013, 64 percent of young people in Greece were unemployed and 56 percent of those in Spain. This statistic is somewhat skewed because many younger people are in school.

Seeking greener pastures, citizens of many periphery countries have begun to emigrate. According to The Economist, a study by Real Instituto Elcano found that almost three-fourths of Spaniards under the age of 30 have considered moving abroad. Two percent of Portugal's population has departed during the past two years, and a record 3,000 people are leaving Ireland each month. The destination of choice for many has been Germany.

According to The Economist, the exodus could exacerbate problems in high-debt countries:  

"Labor is one of the main inputs to growth, and a reduction in the size of the underlying labor force through migration will shrink potential output across the periphery, making existing debt loads harder to bear. This could be especially bad if young workers are the ones leaving. That would worsen the dependency ratio as well; there would be fewer potential taxpayers in Spain and Italy to pay for the benefits flowing to a rapidly growing population of pensioners. The greater these migratory flows, the worse the fiscal outlook for the periphery."

As with any makeover, it's difficult to know whether the end result will be positive or lasting, but one thing is likely. The European Union is going to look different in the future.

Weekly Focus - Think About It...

"When we are no longer able to change a situation - we are challenged to change ourselves."

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