The death of the U.S. economic recovery that began in June 2009 has been predicted many times. Even more often, pundits and ordinary investors have fretted that the recovery is sputtering.
I don't know how long the good times will roll. But my guess is that we are only in the fourth inning or so of a nine-inning game.
It's easy to be mesmerized by the short-term ebb and flow of the economic indicators. They look bullish one day, bearish the next, and confusingly mixed the day after. It can be helpful to step back and take a little longer perspective.
The table below offers one. It compares economic conditions today with conditions two years ago, one year ago, and now.
Economic Factor | 2 years ago | 1 year ago | Latest Reading |
Unemployment | 9.1% | 8.2% | 7.6% |
Weekly jobless claims | 411,000 | 386,000 | 343,000 |
GDP growth (1) | 0.1% | 2.0% | 1.8% |
Auto sales | 11.7 million | 14.3 million | 15.9 million |
Housing starts | 608,000 | 767,000 | 914,000 |
Retail sales | $386 billion | $400 billion | $421 billion |
(1) Economic Factor Quarter over quarter, annualized.
Five of the six factors above show a clear pattern of continuing growth. The only exception is the rate of GDP growth, which was very slightly lower at the latest measurement than it was a year ago.
I can't say that growth is robust. I can't say with certainty that it's accelerating, although I believe it is. What I can say ¿ and what anyone who steps back and looks at the big picture can see ¿ is that the U.S. is in a cyclical recovery, and that autos and housing are important ingredients in that recovery.
All this has implications for stock-market strategy. The market (as measured by the Standard & Poor's 500 Index) sells or 16x trailing earnings and 15x estimated earnings. We all know that analysts tend to be a little rosy most years with their estimates.
But 2014 may be an exception to that pattern. In my opinion, with the economy still ramping up, the 2014 profit estimates may be a little conservative.
If so, the market is on sound footing, and the occasional declines will just be garden-variety corrections within an upward trend.
At the time of publication, he and most of his clients were fully invested in equities.