Saturday, May 5, 2012

Economic Stability: Still in Question in the U.S. & EU

The mixed economic indicators have been a source of much debate among analysts. The softer than expected Jobs Report, along with the spiking gas prices have turned the optimistic economic forecast on its head. An article in the Wall Street journal indicated the industries that were previously driving the economic recovery in the past year have slowed, noting that others economic indicators have stepped up their place. I'd say that's as accurate observation and interesting fodder for economists. For example: the housing market appears to be gaining a good deal of traction, and consumer spending has been consistently growing, and gaining momentum. Experts say that the up-beat consumer spending data is linked more to the unusual warm Winter, and thus not so much a real indication of a positive consumer outlook. The market has fluctuated in the last quarter of 2011, but it cannot be disputed that the DOW has flourished in spite of the slow economy to its highest levels above 13, 000. It also appears that the market seems to be a lot less sensitive to the news across the Atlantic than last year. The Ratings agency, S&P downgraded Spain's debt in January and again in March, but the market barely responded to the news. This is somewhat surprising considering the impact the Euro crisis would have on our economy if things were to spiral out of control. Perhaps the market had already compensated for the news in the last quarter of 2011, since the downgrade for France and Spain had been anticipated.

Indications That support Optimism

Consumer spending has been a great influence on the economy, having a direct impact on the retail industry revenues. It should be noted that two thirds of national GDP is made up revenues from consumer spending. Consumer spending is indeed an important aspect of analyzing the economic forecast. The Housing market is showing signs of life, as housing purchases in the first quarter increased 19%. More dramatic statistics have been coming out of Miami and New York, but it’s still too soon to exhale

Indications That support Pessimism

The rising oil prices have become an unavoidable threat to the recovery, but for some inexplicable reason consumers are taking advantage of the prices and low financing interest rates. The jobs report came in at 120,000 new jobs, which is the lowest number in several months. This could indicate that employers are not completely convinced that the economy is on the road to solid footing. Let's face it the perception of the economy is the most important aspect of the forecast. Economists and analyst can talk endlessly, but if the investors' perceptions do not concur, they stay out of the market, or get out.

The fact is there are both positive and negative influences at work, making it more challenging to decipher the indicators. If I had to take a stab at analyzing the economic indicators, I'd be likely to lean toward an optimistic forecast because of the sheer impact that consumer spending has on the GDP, and the deep discounts in the housing values which have spurred buying. Also, the earning reports illustrated that banks are thriving amid restrictive finance reforms, and retailers are reporting positive earnings that beat analysts' expectations. Tourism in the country reached an all-time high amounting to billions in added revenues in New York alone. We will just have to wait ad see, it could really go either direction in the coming months.

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