Signs of U.S. Growth in the Short Term Are Positive
In spite of harsh winter weather this past January, the U.S. economy continues to trend strongly. With a lackluster jobs report in December that included only a 74,000 increase in non-farm payroll jobs, economists were concerned that the snow and freezing temperatures of the past several weeks would further complicate a recovering U.S. market.
This concern seems to be relatively unfounded. With initial projections seeing a 3% growth trajectory, the U.S. economy seems to be setting itself out for a more vigorous market than in previous years. The job report for last month indicates an increase of more than 230% in new non-farm payroll positions (175,000). Increases in non-farm payroll positions, used to describe positions in goods, construction, and manufacturing, are seen as a very telling indicator of relative market strength.
U.S. small businesses are showing similar strong strides. According to the Thompson Reuters/PayNet Small Business Lending Index, small business borrowing has continually trended since June 2009 to its highest level in six years. This index, which measures the absolute volume of small business financing, has been correlated to future U.S. growth and should indicate strong market performance within two fiscal quarters.
Unemployment insurance claims are down as well, with the four-week average for new claims at 335,000. Coupled with the Federal Reserve's decision to cut bond-buying efforts (you can read more about that here), some say nothing but sunny skies are to be expected in the country's future.
All good signs?
In the short term, perhaps this is true. A longer view may give other indications to future of the U.S. market.
The Congressional Budget Office foresees a 25% reduction drop in annual real GDP capita growth in the coming two decades, from 2.1% to 1.6%. Others claim that new manufacturing orders in December and January have dropped to their lowest levels in 33 years. While the financial implications of the Congressional taper are not fully realized, the reduction of U.S. funding in unsteady world markets may lead to potential financial blow-back on the U.S. bottom line in the form of reduced exports.
Then again, these concerns may be somewhat overblown. Tapering of U.S. overseas funding may or may not continue depending on market performance in the coming months. Even with its continuation, market conditions in unsteady economies are fluid and may resolve themselves without U.S. assistance.
While new manufacturing orders may have fallen, this could be a function of the uncommonly harsh winter being felt by most of the country. Even with the cold weather, some industries have enjoyed modest increases, such as the construction spending moving up to an annual rate of $930.5 billion. While this is neither the exception nor the rule, the increases in domestic manufacturing could mean the market is better than others suggest.
Finally, though the CBO expects a reduction in annual real GDP growth, the 0.5% drop does not necessarily mean that the common consumer will be any worse off than those today. Indeed, the increases in annual growth suggest that, as CNBC claims, a child born today will have an income "60% higher at age 30 than his or her parents had at the same age." While this is not set in stone and forms only the average assumption, the increase would indicate that the U.S. economy will continue to expand rather than contract.
It is worth noting that all the predictions made currently are based on a single underlying assumption: that the current market is exposed to absolutely nothing new in terms of goods and services innovation. Considering the leapfrogging advancements the market has made in the past decade or so, this means that barring another financial crisis, the U.S. economy should be set to continue its upward climb regardless of other market competitors.
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