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This Is What An Economic Sweet Spot Looks Like

This is what an economic sweet spot looks like, and it's what's happening now, based on a stream of new data released this past week.

The U.S. Index Of Leading Economic Indicators, released this morning, popped for the second month in a row.

It shot up in January by six-tenths of 1% in January, following a half-point jump in December.

This is a significant acceleration in the forward-looking economic data. If this trend continues, the U.S. economy may accelerate in the near-term.

The LEI is comprised of forward-looking sub-indexes and is meant to tell you what's immediately ahead for the U.S. economy. It has plunged very definitively prior to previous recessions. There's no suggestion of that kind of pattern at present, with the LEI's on the rise.

The LEI report corroborates the growing evidence of accelerating momentum in the economy and that's been driving the stock market higher.

On Valentine's Day, the National Federation of Independent Businesses released its measurement of small business sentiment, and optimism surged for the second consecutive month. Small business is the main engine of U.S. economic growth.

"The continued surge in optimism is a welcome sign that economic growth is coming," said NFIB Chief Economist Bill Dunkelberg. "The very positive expectations that we see in our data have already begun translating into hiring and spending in the small business sector."

NFIB said the recent growth in optimism looks similar to the surge in the Index in 1983, which was followed by years of economic prosperity, said Juanita Duggan, an NFIB economist. After eight years of struggling with government barriers, small business owners are hopeful that policy proposals from the new administration and Congress will spur economic growth in a similar manner.

Small businesses are a key engine of growth in the American economy. According to NFIB, small business accounts for half of all private sector employees, and generated 60% to 80% of net new jobs annually over the last decade. When small business optimism is strong - and it has not surged like it did the past two months since 1983 - good things in the economy have in the past followed for years.

What happens when the economy does better than expected is illustrated in the gold line in this chart. Over the past three months, upside surprises have been occurring repeatedly.

Retails sales in January accelerated from last month, we learned this past week. For the most recent 12 months, retail sales rose 4.7% year over year. By comparison, at the peak of the last economic expansion, retail sales were up just 3.1% year over year. And retail sales growth is accelerating!

Big-box and department stores are a dying retail format, the data through the end of January shows. Brick and mortar retailers saw sales growth of 4.3% while non-store retailers, dominated by Amazon, shot up by 12.9%. Retailers are becoming less and less significant in the U.S. economy.

Wall Street ended the week with all major stock indexes at record highs, and the Dow Jones Industrial Average hit its seventh consecutive record close. It was the fourth straight week of gains for the Standard & Poor's 500 index, its longest winning streak since July.

The economy is improving and corporate profits are growing more quickly than analysts expected. The data for last week, along with hopes for lower taxes and other business-friendly policies emerging from Washington, keeps pushing the stock market to record highs and the good news is accelerating.

A new crisis could send some investors to the sidelines anytime, and a correction of 10% or perhaps 15% is possible at any time. For now, however, for long term investors, this is what an economic sweet spot looks like.


This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used by as financial advice without consulting a professional about your personal situation.

Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results. Investing in foreign securities carries political and currency risks.


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This article was written by a professional financial journalist for Houston Asset Management and is not intended as legal or investment advice.

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