Sustainable Recovery Ahead?

By David Berman

The latest batch of U.S. economic data is exceeding expectations, suggesting that the recovery is alive and well and – dare we say it – starting to look sustainable as fears of a so-called double-dip recession recede.

On Monday, the Commerce Department reported that personal spending in December jumped 0.7 per cent over November. That’s well above the gain that economists had been forecasting, and it comes with a 0.4 per cent rise in personal income during the month and a decline in the savings rate. Put another way, disposable personal income increased by $47.3-billion (U.S.).

In other words, consumers are willing and able to shell out money, which is a vital component to the recovery given that consumer spending represents about 70 per cent of U.S. economic activity.

At the same time, the Chicago purchasing managers index rose to 68.8 in January, up from 66.8 in December, also beating the consensus forecast for a slight correction and pointing to stronger-than-expected business activity in the Chicago region. Any number above 50 indicates an expansion in activity.

“This might be due in part to the revival in auto sales in recent months, as the Chicago area is more sensitive to autos than the economy as a whole,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a note. “Either way, it looks good.”

And it follows last week’s bullish-looking reports on fourth-quarter economic growth and consumer spending, the latter rising 4.4 per cent and topping expectations. Okay, most housing market indicators remain in the dumps, with home ownership down to its lowest level since 1998. And unemployment figures have shown few signs of throwing off any real signs of optimism. The number of employed Americans is down 7.2 million from its peak.

Still, recent momentum has some observers weighing in with some pretty reassuring words. Here's blogger Tim Duyon Friday's report on gross domestic product growth:

“In my opinion, this is the first GDP report since the recession 'ended' that offers a certain optimism, a glimmer of hope that perhaps that light at the end of the tunnel is not simply an oncoming train. If it is an oncoming train, it is not the train of sagging government spending, but instead a train of imports blasting forward."

And: "The GDP report revealed what could be, the glimmers of hope of a V-shaped recovery."

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