Sunday, October 23, 2011

Economy: Bye, Bye Recession

Last week brought another deluge of news from the economic front. Their message was clear: The economic picture in the U.S. is getting brighter and the next recession is far away.

1. Manufacturing, which showed week spots in summer, seems to reaccelerate. Industrial production increased 0.2% in September and was 3.2% above its year-earlier level.

And the Philadelphia Federal Reserve reported that its manufacturing index ( a gauge of factory activity in the northeast U.S.) jumped to plus 8.7 in October (September minus  17.5 ), signaling growth in the region’s factories for the first time in three months.

2. The U.S. housing market also indicates some improvements. Total housing starts in September were 15.0% higher than in August. Most of the increase was for multi-family starts (department houses).

3. The job market continued its slow healing process. The number of weekly jobless claims sank to 403,000 (previous week 409,000). The 4 week average also dropped to 403,000, the lowest number since April. In the recession 2008/09 these numbers jumped above 600,000.

4. The positive economic picture got underlined by the companies which are now reporting their profit & revenues from the third quarter. Especially encouraging data came from CSX. As a carrier of consumer goods and raw material the railroad operator depends strongly upon economic development. In Q3 their revenues jumped 11% compared to last year with improved sales across most of the railroad's major markets. Michael Ward, the CEO of CSX, told the media “We are a good barometer of the economy and we did see some uptick in September”. ( ) He continued: “It’s a normal fall peak where retailers are stocking the stores for the Christmas time…We do expect continued growth, not robust but modest, in the coming quarters.”

The stock market (S&P 500) reacted hesitantly and gained just 1% last week. Many market participants are still focusing on the European misery. But there is a high probability that the healing U.S. economy and the still strong growth in China and other emerging markets will rekindle the European exports and stabilize the ailing economies in Europe. These developments could lead to further rising stock prices.

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