It has been over two years since the financial crisis rocked the U.S. economy. Within a matter of months, consumers stopped spending, corporations cancelled projects, the unemployment rate shot up, banks failed, and well, you know the rest of that story. But that story has ended, the recovery is real and the economy is healing.
We have been watching economic indicators for signs of an improving economy. As early as the third quarter of 2009, the signs were beginning to appear. One example is that manufacturing began to show expansion as measured by the Institute of Supply Management (ISM), but consumer confidence and business confidence remained weak in 2009. Jobs were still being lost, and foreclosures began to skyrocket.
While 2010 has felt like a mad game of push me – pull you, the underlying trend has been up. Yes, up. Here are some of the most recent numbers to support that this recovery is worth believing in. The ISM Manufacturing Index registered 56.6 in November, the second-fastest rate in the past six months. (Anything over 50 signifies expansion.) The Non-Manufacturing Index rose to 55 in November showing that the service sector rebound continues after a slight summer swoon. Although not enough to improve the jobs picture, third quarter GDP was revised up to 2.5%. The fourth quarter GDP should be slightly higher, and estimates for 2011 are now between 3% and 4%. Consumer confidence has also moved higher, and it is not surprising that we are seeing this reflected in improving restaurant, retail and auto sales. The U.S. equity markets have also been moving up. Generally, a rising equity market has been an indicator of improving corporate earnings and an improving economy.
We are optimistic that the signs are indicating a sustainable recovery. We do not know more than Mr. Bernanke. He is still voicing doubts. But the action of the Federal Reserve adds another reason to believe that the recovery is real. The Federal Reserve has launched a second round of Treasury purchases in an effort to keep interest rates low and support the economy through its soft patches. Low interest rates and low inflation have historically been a catalyst for economic growth. No, history does not always repeat, but it usually rhymes. As for the icing on the cake, it may be the “tax compromise” that President Obama announced on December 6.
It is time to start believing in the recovery and looking forward to the expansion that may be peeking over the horizon.
Happy Holidays and Happy New Year!
Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.