What’s happening in the US Economy?
With retail sales weak and employment growth spotty, it’s confusing when markets are down 200 or up 200 on successive days. So it’s good to look at the economy and market in historical context, and compare our current condition to what’s gone on in the past.
There’s no question that we are still in recovery-mode. The Financial Crisis of 2008 left some deep scars in the economy: the banking system is still fragile; home foreclosures are still high; and employment has yet to recover. Too many people are either looking for work or have given up trying. No one can honestly say that the economy is good.
But there are still many signs that the economy is improving: manufacturing is expanding; trade is growing; and most importantly, business profits continue to be strong. Corporations have plenty of cash on hand to expand, if they need to. So while the economy isn’t particularly healthy, it’s still getting better.
But borrow from the poet John Donne, no economy is an island. Troubles in Europe and a slowdown in China are affecting us all. Europe is in a recession, brought on by the structural imbalances in their currency. Their piecemeal approach to crisis-management, with a little bit of this, a little bit of that, isn’t calming their markets. They need to create a common supervisory framework for their banks and get credit flowing again. Whether they have to go on to federalize their debt is an open question.
So US markets reflect global uncertainty, even if our own economy is okay. Indeed, the US and Europe comprise over half of the world’s economy. But over here, economic and financial conditions are more like the middle of an expansion, rather than the end of a cycle.
Economies follow patterns of growth, expansion, and decay. In spite of problems in Europe, the US still remains on an improving track.
Douglas R. Tengdin, CFA
Chief Investment Officer
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