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7 reasons the U.S. economy is rock solid

Jobs, housing and consumers are holding strong.

  • By Jeff Reeves,
  • MarketWatch
  • – 08/04/2014
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The much-anticipated jobs report for July missed the mark, but there is no reason to be concerned. Long-term labor trends are improving, and economic indicators continue to point higher.

So it's worth remembering that there isn't a firm link between economic growth and a rising stock market. Regardless, it is undeniably good for America and U.S. investors to see the economy back on firm footing.

And if you're still not convinced the U.S. economy is doing well, here's a short list of reasons that investors and consumers can be confident that the U.S. economy is rock solid:

1. Job market continues to improve

Sure, the latest jobs numbers showed an increase to the headline unemployment rate. That's a bit disappointing because June's reading of 6.1% showed the lowest level since September 2008, however the 6.2% reading remains the lowest since October 2008. That's hardly a mammoth change. Furthermore, critics who say the decline in joblessness is because of folks leaving the labor force should note that the labor participation rate actually ticked up slightly.

2. Hope for long-term unemployed

The long-term unemployment rate has finally shown signs that it is declining in earnest. According to a recently released report from the Federal Reserve , the long-term unemployment rate has fallen 0.5 percentage points since the end of 2013, accounting for "almost the entire decline" in the headline unemployment rate. At the same time, the labor participation rate has remained unchanged — so no grumbling about how the shift has been caused by folks dropping out of the workforce, please.

3. Blame it on the rain and snow

The economy wasn't doing so badly — it was just the weather. The basic notion that a spring thaw would also thaw the economy has held true. Simply look at the big snap-back in Q2 GDP, with early estimates of 4% growth, for proof.

4. Consumers are back

Partially because the drag caused by bad weather is behind us and partially because of other improving economic conditions, consumer spending is quite healthy and driving GDP expansion. In the GDP details, consumer spending improved at a 2.5% growth rate . Furthermore, consumer confidence is at its highest level since October 2007 according to a July Conference Board report.

5. Strong business spending

Also in the second-quarter GDP details were signs of life in the private sector; business spending, for example, increased 5.5% on strong equipment demand. Separately, the Commerce Department indicates non-defense capital spending was up 1.4% as transportation and machinery demand blew away expectations of 0.5% growth.

Moreover, a July report from Gartner showed a 2.1% growth rate in IT spending — including a brisk 6.9% expansion in enterprise software spending. While clearly there are tech stocks with valuation issues or product challenges in a mobile age, it's undeniable that businesses are spending more on equipment and technology – and that indicates optimism about future growth.

6. Housing is robust

While headlines like to trumpet the fact that home price growth is slowing , the reality is that they are still rising. The most recent S&P/Case-Shiller Home Price Index shows that major urban areas saw a 9.4% price increase across the year through May. In addition, GDP data showed a 7.5% growth rate on homebuilding and home improvement and homebuilder recently moved back into positive territory . All this hardly sounds like signs of a looming housing crash.

7. Don't forget earnings

According to Zacks Investment Research , S&P 500 (.SPX) components have reported earnings increases of 11.5% on average and 5.8% higher revenue through July 31. Furthermore, 66.7% have topped profit forecasts and 59.6% have topped revenue expectations. The icing on the cake is "modest improvement on the guidance front" that could indicate a sustained uptrend in corporate earnings across the next few quarters as well.

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