A blowout second quarter GDP increase, consumer confidence surging, strong job growth, and near all-time highs for the stock market (Dow/S&P 500), all provide evidence the U.S. economy is doing well and has put the "Great Recession" well behind us. The thus far slow pace of the expansion may well have developed sufficient momentum to bring the fruits of growth that thus far have enriched Wall Street, to Main Street as well.
Many however, feel it is premature to say "the skies above are clear again" as they see many potential clouds on the horizon. Fear of the Federal Reserve's tapering bond purchasing, potential increases in interest rates, the slowness of the recovery, pace of unemployment drop, and even fears of future inflation provide concerns for those so inclined. Geo-political issues such as the fighting in Ukraine and the Middle East, and the continuing dysfunction in Washington, are also areas of concern.
While worry will always be with us, several recent reports provide reason for optimism on the economy. The first positive report came from the Conference Board, which released its monthly report on consumer confidence for July. Not only was the report positive for the third straight month, but its July Index was the highest of any month since October 2007. That was before the "Great Recession" led to consumer confidence practically evaporating.
The confidence index for July is 90.9, which compares very favorably with the 79.4 level for January 2014, and the 58.4 for January 2013, or the post-recession low of 40.9 in October 2011. Not only does the survey show consumers are more confident about the present, it shows they feel better about their future prospects in the economy as well.
The expectations index, part of the report, shows consumers believe their future will be better as shown by the 6.3 increase in the index to 92.7. This report bodes very well for future economic growth as confident consumers are more likely to spend (especially on bigger ticket items) and drive our economy forward.
The day after the consumer confidence report was released; the Commerce Department reported that GDP for the second quarter of 2014 grew by a robust 4 percent. It also revised the first quarter loss down to 2.1 percent from the earlier reported drop of 2.9 percent. Since the consensus estimate of growth for the second quarter was 3.1 percent, the 4 percent number was much stronger than expected.
While the unemployment rate remains relatively high, the trend has clearly been down. In June the unemployment rate went down by .2 percent from 6.3 percent in May, it has dropped by 1.4 percent over the last year and by over 2 percent over the last two years. The number of unemployed, currently at 9.5 million, while much higher than one would wish, is 2.3 million less than it was a year ago.
Over the last six months, job growth has exceeded 200,000 per month. That has not happened since 1997. While reasonable people can argue whether the economy's glass is half full or half empty, it is clearly in better shape than it has been at any time since the recession hit.
Understanding there are still many that have not found jobs or joy from the current economic growth, much good has happened and is happening. The recovery that has seen asset prices skyrocket may well be at the stage that job growth accelerates and wages see gains as well. Should economic growth move to 3 percent or higher, as many now predict, the increase in jobs and upward pressure on wages should bring the benefits of the recovery to many who thus far have not had reason to "sing a song of cheer again."
Recognizing there is more to be done, we should, on occasions like the release of this past week's reports, be willing to think that for the general public at long last "happy days are here again," as the economy is getting better in many ways that should benefit them.
-----
Kevin B. Murray is a vice president at Karpus Investment Management, a local independent, registered investment advisor managing assets for individuals, corporations, nonprofits and trustees. He can be reached at (585) 586-4680.
Published: Fri, Aug 08, 2014
