At the Moment, the Good Outweighs the Bad

 

 

 

Total retail sales in the US jumped 1.1% in February when compared with the previous month. This was a much stronger showing than most analysts expected, and it suggests that the recent increase in payroll taxes is not affecting consumers as negatively as many predicted it would. So far this year, retail sales are running about 4% ahead of last year's figures. Our latest forecast calls for a gain of 5% for all of 2013 when compared with last year.

Most consumers continue to experience resistance from economic headwinds: the increasing fiscal austerity resulting from higher taxes and lower government spending; slowly growing incomes; an uncomfortably high rate of unemployment; and uncertainty caused by partisan policymakers in Washington. There is also a recession in Europe, and the tensions in the Middle East are escalating. All of these issues are combining to put a substantial drag on our confidence and economic activity.

But these issues are being outweighed by the good ol’ improving economic fundamentals in the US. The recovery in residential construction and real estate is gaining momentum. The manufacturing sector continues to get a boost from a revitalized auto industry. Interest rates are at historic lows, and the stock market is at an all-time high. Corporate profits are strong. Access to credit is getting a bit easier.

We do not appear to be in any danger of taking off and growing too much or too quickly, but for now at least, the good news is trumping the bad news. And barring any unforeseen shocks, the American economy will continue to gradually improve into the third quarter of this year. By the end of this year, many of the aforementioned impediments to economic growth will be resolved, and our economy will start to hit on all cylinders in 2014.