Several current indicators report new highs in consumer spending and manufacturing. Notwithstanding the deficit issue which WSG discussed in a recent commentary the economy is on a growth track. U.S. consumer spending has surpassed its pre recession peak. The previous peak for consumer spending occurred in November 2007 .U.S. consumer spending rose at the fastest rate in three years during the first quarter of 2010, powering the economy to a 3.2% growth rate, the Commerce Department reported Friday. In the past six months, GDP has expanded at a 4.4% pace, faster than the 2.8% average over the past 25 years, but it has failed to surge into to 7%-to -10% range as typically happens after a deep recession. Most economists continue to expect a slow recovery, with not nearly enough growth to bring the U.S. unemployment rate down rapidly. This indicates as many experts have forecasted that the U.S. economic recovery will be steady but at a slow sustained pace. Investors sent stocks soaring Monday after getting a boost of confidence from the latest economic reports. The Dow Jones industrial average rose 143 points for its biggest gain in two and a half months. The Dow and broader indexes all climbed more than 1 percent. With spending growing much faster than incomes in March, the personal savings rate fell to 2.7%, the lowest since September 2008. The savings rate had peaked at 6.4% last May when stimulus payments hit consumers' bank balances.
Consumer spending is expected to remain strong in the second quarter, "again financed by a decline in the savings rate," wrote Harm Bandholz, chief U.S. economist for UniCredit Research. "U.S. households are, therefore, on their way back to business-as-usual." The issue then becomes job growth to enable the consumer to pay down consumer debt and replenish their savings.
The ISM manufacturing index also rose to 60.4% in April from 59.6% in March, showing factories continue to contribute most to the strength of the U.S. recovery. The gain was above economists' expectations for a rise to 60.1%. Seventeen of the18 industries studied were growing in April. Readings above 50% in the ISM diffusion index mean that more firms say business is getting better than say it's getting worse. American factories and their overseas counterparts are benefiting from the global economy’s recovery from the worst recession in the post-World War II era.
Factories are producing more goods. Consumers are spending. Government aid is fueling construction activity. These trends further confirm what investors have been betting on -- the continued progress in the economy. Markets were up on Monday and the positive sentiment bolstered by these positive consumer and manufacturing indicators bode well for investors. Job growth, however, remains relatively flat which will be closely monitored in the remaing 2010 quarterly economic reports.
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