Sunday, March 18, 2012

The U.S. Economy: Still Fragile, But Not Broken

Driving last week’s positive equity market performance were:
  1. generally positive results from the Federal Reserve's banking stress test,
  2. improving employment and manufacturing trends and 
  3. comments from rail operator CSX Corp. that container and merchandise shipment demand was improving.  
On Thursday, U.S. Treasury Secretary Tim Geithner’s speech at the Economic Club of New York highlighted that the U.S. economy:
  1. is benefiting from improvements in private investment and exports,
  2. is still adjusting from too much consumer debtfinancial sector leverage and excessive real estate development and
  3. remains challenged by high unemployment, a weak residential construction market – with depressed home values in many parts of the country and high energy prices.  
The economy is showing signs of recovery with improving auto purchases and retail sales; however, other critical components associated with a recovery such as a bottoming of the debt deleveraging process, strong GDP growth (i.e. +4%) and strong wage growth have not yet taken hold. These conflicting signals may continue to dampen investor conviction.

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