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Parts of the economy on the right track and doing better than we think

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Besides an improving housing market, some sectors in the economy are still doing better than we think, according to Market Watch.

Jobs – even though the unemployment rate remains at 7.5%, raw numbers show that  payroll growth is now matching population growth on a nearly one-to-one basis. This is good news in terms of employment. Does job creation make for a better economy or does a better economy create more jobs? This seems to be the universal chicken-egg conundrum. Market Watch tells us that for more jobs to be created, the broader economy needs to be in good shape for a booming labor market. The recent payroll figures signify that we’re heading in the right direction.

Investment – companies may not be investing 200% of their profits in a not-so-great economy (unlike the 1970’s) and maybe sitting on cash reserves that would otherwise be utilized for investments. But they’re not completely gun shy about investing either. Numbers show that companies have been investing about 78% of their profits, which still amounts to an annual average of $1.5 trillion as seen in the last three years. That rate of investment has only been outpaced twice before in U.S. history  (during the IT boom in the 1990’s and ad credit/construction bubble in 2006-2007). So, it’s safe to say business investments are also on the right track.

Consumption – Given the waiting crowds in our favorite restaurants on a Wednesday night, I’m constantly left to wonder, “Are we still in a recession?” According to reports, consumers are spending all they can (or giving back to the economy) under the circumstances (frozen pay raises). Consumer spending accounts for 75% of the GDP (4% increase since the 80’s and 90’s).  We’re expecting consumers to reduce their savings rate even further than they already have. However, consumers need higher incomes to comfortably increase their spending.

So, while the economy is still in recovery mode, we can look on the bright side to the parts that are already well on the way to a better outlook.