America's recovery gathers pace

US economic data have continued to improve with unemployment falling to a five-year low.

US economic data has continued to improve. Payrolls grew by 203,000 in November and the unemployment rate declined to a five-year low of 7%.

The University of Michigan's gauge of consumer sentiment climbed to a five-month high. An index tracking manufacturing activity is at a two-and-a-half-year high. Annualised GDP growth accelerated to 3.6% in the third quarter.

What the commentators said

But the employment recovery and the decline in inflation, boosting real incomes, are underpinning household spending.

Meanwhile, the outlook is encouraging, according to Capital Economics. September and October saw a surge in building permits, suggesting that higher mortgage rates have simply dampened, rather than choked off, the housing rebound.

The fiscal drag from Washington is also set to ease over the next 12 months after this year's cuts. That should outweigh any further increase in long-term interest rates.

That's because the US Federal Reserve has made it clear that its benchmark interest rate is set to stay at near-zero for another two years, and liquidity-addicted markets have twigged that tapering quantitative easing reducing the pace of money printing, as the Fed is likely to do soon is not the same thing as tightening policy.

So another sharp jump in long-term interest rates, as occurred when markets confused tapering with tightening earlier this year, is unlikely. Consequently, 2014 "could be the year that the recovery finally shifts into top gear", concluded Capital Economics.

Recommended

The Federal Reserve has turned inflation-fighter – how do you invest now?
US Economy

The Federal Reserve has turned inflation-fighter – how do you invest now?

The US Federal Reserve has become much more hawkish on inflation and less concerned with the markets' reaction to rising interest rates. John Stepek e…
27 Jan 2022
US inflation still shows no sign of fading
US Economy

US inflation still shows no sign of fading

Annual US inflation hit 7% in December, its highest since 1982, while core inflation rose to 5.5%. That suggests high price rises are going nowhere so…
21 Jan 2022
US inflation is at its highest since 1982. Why aren’t markets panicking?
Inflation

US inflation is at its highest since 1982. Why aren’t markets panicking?

US inflation is at 7% – the last time it was this high interest rates were at 14%. But instead of panicking, markets just shrugged. John Stepek explai…
13 Jan 2022
In praise of profits – Ed Yardeni’s stirring defence of capitalism
Economy

In praise of profits – Ed Yardeni’s stirring defence of capitalism

It is commonly held that the average American's income has not risen for decades. But in truth, real earnings have been rising by 1.5% since 1995. And…
21 Dec 2021

Most Popular

Shareholder capitalism: why we must return power to listed companies’ ultimate owners
Investment strategy

Shareholder capitalism: why we must return power to listed companies’ ultimate owners

Under our system of shareholder capitalism it's not fund managers, it‘s the individual investors – the company's ultimate owners – who should be telli…
24 Jan 2022
Three innovative Asian stocks to buy now
Share tips

Three innovative Asian stocks to buy now

Professional investor Fay Ren of the Cerno Pacific Fund highlights three of her favourite Asian stocks to buy now
24 Jan 2022
Temple Bar’s Ian Lance and Nick Purves: the essence of value investing
Investment strategy

Temple Bar’s Ian Lance and Nick Purves: the essence of value investing

Ian Lance and Nick Purves of the Temple Bar investment trust explain the essence of “value investing” – buying something for less than its intrinsic v…
14 Jan 2022