Why the U.S Economy Is Like Dickens’ Tale of Two Cities

The Markets

Despite all the concern about the fiscal cliff, the sovereign debt crisis, and saber-rattling in the Middle East, the U.S. stock market has posted a strong year-to-date gain.

With just three months left in the year, the Standard and Poor’s 500 index is up 14.6 percent, while the NASDAQ composite index, which measures more than 3,000 stocks on the NASDAQ exchange, is up 19.6 percent.

Drilling down to the U.S. economy, it’s like a tale of two cities.

In the “depressed” city, economic indicators such as orders for durable goods (e.g., cars, planes, machinery, and washing machines), GDP growth, and manufacturing activity are weak. In fact, last week the Commerce Department released its final report on second quarter GDP – the broadest measure of economic activity in the U.S. – and it wasn’t pretty. It was revised downward to show just 1.3 percent growth. That’s down from the previous estimate of 1.7 percent and is barely above stall speed.

Moving down the interstate to the “booming” city, we have other indicators showing a healthier economy. Housing prices and sales volume, for example, are both up in double-digit percentages from a year ago. Consumer confidence is at a four-month high. On the jobs front, unemployment is still unacceptably high, but the unemployment rate has declined this year as has the number of people filing for new weekly unemployment claims. And, the biggie – the stock market – has risen steadily and recentlyhit a nearly five-year high.

So, which “economic city” will overtake the other as we head into the final stretch of the year?

Well, to a large degree, the answer may reside in the hands of the Fed, Congress, and the political dealmakers in Europe. The Fed’s trying to do its part by greasing the economy with cheap money. Congress, on the other hand, has yet to step up to the plate and show it can prevent the fiscal cliff from tanking the economy. And, in Europe, Spain is in the crosshairs as market watchers nervously calculate the impact of each attempt – or non-attempt – to solve the country’s huge debt and unemployment crisis.

While Dickens’ Tale of Two Cities was a bit dark, we suspect the U.S. economy will eventually find a way to rise to the occasion, even if there are some additional bumps along the way.

The rest of the report can be found here.

Please be sure to visit the Parks Wealth Management website at www.parkswm.com

Best regards,

James T. Parks, CFP®, AEP, AIF
President and Wealth Advisor