Despite the uncertainty with Washington’s dealing with the Fiscal Cliff, the US economy just keeps chugging along with forward progress. The Holiday Season is chock full of shoppers this year, Americans are spending and collectively seem to be feeling better about their financial situation. We’ve seen a substantial recovery in housing, as historically low interest rates have finally awakened borrowers, and seem to have put a floor under property values in many areas across our country. The Bay Area has certainly seen a bounce in home prices.
Housing has a multiplying effect on the US economy. Homeowners generally feel wealthier when their house is appraised higher. They begin spending more at retailers, and enhancements and remodels kick in. Construction picks up, and new jobs are created again, and, well you get the picture. This multiplying effect is precisely why the Fed was targeting housing with its Quantitative Easing #3 (a/k/a QE3) announcement in the Fall. It’s working with Winter officially only two short weeks away. .
We’ve been saying all along that a full blown economic recovery in the US required two things: A revival in housing and JOBS. The unemployment rate has been dangerously high for nearly 5 years. Today’s job report shocked many with its surprising strength. The Department of Labor reported an increase of 146K jobs in November, nearly twice the expected number. And the unemployment rate cascaded down to 7.7%, it’s lowest since 2008. What’s surprising is the pop in jobs came despite the shutdown on the East Coast by Hurricane Sandy early in the month. Taking a step further, many companies have been holding back on hiring and capital investment to gain more clarity on fiscal policy. This job report had many scratching their heads, but the Market likes it. Most CEO’s await the return of confidence before pumping up hiring. Guess what? American confidence has returned and Santa is on his way.
Despite all the concerns and confusion that investors are dealing with, the American consumer and the DOW keep forging ahead with forward momentum. Let’s hope Congress gets the hint and can compromise with pragmatic legislation that would kick start an economic acceleration. Now that would be a nice stocking stuffer. Have a nice weekend.
By: Mike Frazier
PS: As we remember Pearl Harbor Day today, we thank our servicemen and women for all they do to keep America safe and free.