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9 reasons the U.S. economy is stronger than you think

It might be time to push aside the gloom-and-doom crowd.

  • By Jeff Reeves,
  • MarketWatch
  • – 05/05/2014
  • Economic Insight
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Preliminary first-quarter GDP numbers were released last week, and they were mighty ugly.

The U.S. economy growing at just a 0.1% rate . Not only is that disappointing on its face, it's also a big shortfall from most estimates of about 1.1% GDP growth for the first quarter.

But, so what? There are plenty of reasons to be optimistic now.

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The major stock market indexes are up against fresh highs. And while it's easy to latch onto this one report and ignore the very real impact of poor weather in January and February, it doesn't tell the whole story.

The fact is that the U.S. economy is a heck of a lot stronger than some investors and pundits think it is. While a lot of the numbers that have come out lately haven't set the world on fire, the bottom line is that they all add up to the same story of a stable and strengthening U.S. economy.

Skeptical? Well, here are nine big reasons to be bullish on America in 2014:

Jobs

We have to start here, because Friday's jobs report was huge. U.S. employment growth trounced expectations, with 288,000 jobs added in April, for the biggest tally in two years. Furthermore, the growth has pushed the headline unemployment rate to just 6.3%, its lowest reading since September 2008. The official Bureau of Labor Statistics numbers validate data from private payroll firm ADP, which said payrolls surged in April to "well above the 12-month average," and paints a very strong job picture for the rest of the year.

Consumer spending

Just as many (correctly) predicted that poor weather impacted hiring early in 2014 and that we would see a rebound, many think snow also delayed spending to start the year. Well, for those hoping for a snapback thanks to pent-up demand, they got one in March with the biggest jump in consumer spending since August 2009. The details were also encouraging because incomes rose 0.5%, too, for the biggest pop in this metric since August of 2013.

Durable goods

Durable goods are an important subset of consumer spending, since big-ticket items are often the first to feel the pinch when times get tough. Recently, we saw strong numbers that marked the best April for vehicle sales since 2005. More broadly, at the end of April, we saw overall U.S. durable goods jump 2.6% — building on the 2.1% rise from February and showing business-investment plans increased at the fasted pace in four months.

Consumer sentiment

The Thomson Reuters/University of Michigan sentiment survey for April tallied the highest reading since July 2013, a nine-month high. This may seem obvious, or repetitious, given the previous two items, but it's hard to understate the importance of consumer spending right now as an engine of domestic economic growth.

Manufacturing

PMI numbers were very encouraging, and not just because of a strong headline reading that beat forecasts. The details show the Institute for Supply Management's purchasing managers index at the highest level since December, and all but one of the 18 component industries improved in April.

Furthermore, the last time that many industries were in growth mode was three whole years ago. Lest you think the ISM numbers are a fluke, separate data from research firm Markit was equally strong and reinforced this strong manufacturing outlook for 2014.

Business investment

At the end of April, a survey conducted by the National Association of Business Economics showed 61% of businesses say their firm will increase capital spending in the next year. That's a big number in itself, and up significantly from an average 52% in the past four quarterly surveys conducted by the NABE. One of the big narratives of this "jobless recovery" has been that much of the rebound in corporate profits has been thanks to efficiencies and worker productivity gains, but if businesses feel confident enough to invest in themselves again, that's very good for the economy.

Dealmaking

Takeover activity has already topped $1 trillion in 2014, which is the fastest race to that figure in seven years. The $1 trillion mark was hit thanks to big deals including the recent $15 billion Valeant (VRX) and Allergen (AGN) merger that's in the works and proposed $100 billion deal between Pfizer (PFE) and AstraZeneca (AZN) among others. There's also the (possibly) record setting Alibaba IPO on the horizon, which also speaks to Wall Street's appetite for making high-priced deals and belies a confidence that current asset prices are not overstretched, and that there are still values and bargains to be had even this late in the rally.

The Fed

I know some investors inherently distrust Janet Yellen and the satanic banking cabal that has doomed America — nay, the world — to poverty with currency manipulation and helicopters full of devalued money. But for the more rational investors out there, it's worth noting that last week the Federal Reserve said it would keep unwinding its quantitative-easing bond-buying stimulus. Why? Well, because it's confident that the economy doesn't need the boost anymore and that the previous three months of reductions were the right move to make. So, for what it's worth, the Fed is confident about the U.S. economy, and Wall Street should probably feel the same.

Data disinterest

Right now, you may be rolling your eyes and groaning that all these numbers are mildly compelling at best and preparing counterpoints to each item. I think the very mildness of these numbers is in itself noteworthy.

As New York Times columnist Neil Irwin puts it, "Boring consistency is terrible news for people who want to write splashy headlines about the latest data. But it's good news for everybody else." The fact that there is no clear sign of a crash or a rally is actually a good thing because it proves the absence of a volatile, high-stakes environment. While investors should be encouraged by that trend, it's a double-edged sword because pundits like me are addicted to "listicles" about the U.S. economy, whether they are convincing or not.

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