Economy: A Tale Of 3 Engines

(Drivebycuriosity) - It looks like that the U.S. economic upswing is gathering speed. At least last week`s economic news is very encouraging. We learned that U.S. consumer spending, the backbone of the economy, rose 0.5 % in June (calculatedriskblog). We also got reports that U.S. manufacturing and service sector both grew faster in July (ritholtz.com).

The data show that the economic upswing in the U.S. got more sustainable. The economy benefits from a continuously rising consumer spending, which is driven by 3 engines:

1. Steady growth of the job market:  We learned that the U.S. economy grew 162.000 new jobs in July and that jobless claims fell last week to 326.000 — the lowest level since January 2008! (ritholtz.com)  Hence the disposable incomes are rising and are animating more spending (income effect).

2. The stock market climbed to a new all-time high. The continuous stock market gains - the S&P 500 rose almost 20% year to date -
are increasing the wealth of most Americans and encourage them to consume more (wealth effect 1).

3. Home prices in the U.S. are recovering: Year-over-year, home prices climbed by 12.%. Home owners feel wealthier and get another inspiration to spend more money for consume (wealth effect 2).