The Independent Market Observer

2/15/13 – More Signs of Strength in the U.S.

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Feb 15, 2013 8:51:30 AM

and tagged Market Updates

Leave a comment

The good news keeps trickling in. New unemployment claims ticked down again, continuing a decline that is bringing us closer to the lows of the mid-2000s, as the chart below shows.


Perhaps as a result, consumer confidence also ticked up, per the University of Michigan. Consumer spending increased at a slower rate for January, at 0.1 percent, but the fact that it increased at all, in the face of a wide tax increase on January 1 that adversely affected incomes, is actually encouraging.

For business, one negative report was that productivity decreased, but the principal reason was that wage income jumped—bad for profit margins, good for consumer spending, which is most of the economy. Industrial surveys are recording significant improvements, suggesting that U.S. manufacturers are recovering from the slump in the rest of the world and that the small declines just reported in industrial production will be reversed in the next couple of months.

On a macro level, the U.S. trade balance is improving, in no small part because of the increased domestic production of oil and natural gas. Even despite that, exports are increasing faster than imports, which will help to grow the economy. These changes, as well as others, should result in last quarter’s small decrease in GDP being revised upward to a gain.

On the government side, state and local governments are seeing recovering tax revenues and are expected to start hiring again in the near future. Capital Economics, a consultancy we use, recently put out a focus piece on how much that sector has improved and how previous cuts should start to be reversed. Briefly, state and local governments comprise 12 percent of GDP and 14 percent of all employees; over the past three years, they have reduced GDP growth by 0.3 percent per year and employment by 580,000. As that reverses, it will have a significant positive effect. Even when offset by cuts in federal spending, the effect should be positive, as state and local governments in aggregate are much larger.

Finally, one of the missing pieces of this recovery has been business confidence, and that may be coming into play as well. In the past week, three mega-deals have been announced: the leveraged buyout of Dell, the merger of American Airlines and US Air, and the Warren Buffett-led purchase of Heinz. Such deals typically depend on confidence, and to see three announced at roughly the same time suggests that, even for large business, the narrative has changed.

None of the signals discussed above is determinative individually, but all of them together further confirm my conclusion that we are in a sustainable recovery. We still have many obstacles to overcome—with Europe and the pending sequester/spending cuts the two most prominent at the moment—but overall, the story remains good and is getting better.

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®