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The US economy is improving (which is good for equities) despite one set of bad figures


The Dow Jones has reached a five-year high, passing 14,000 for the first time since 2007.  New Labor Department data showed that in November and December the US economy had added 127,000 more jobs than originally thought, giving a yearly average of 181,000 new jobs per month.  This comes just days after the news that, against expectations, the US economy contracted by 0.1 percent in the final quarter of 2012, an unexpected drop that many analysts nonetheless shrugged off as mostly down to steep cuts in defence spending.  There are other positive indicators for the US, such as a rise in the purchasing managers’ index, and the overall impression is one of a steady recovery well ahead of anything in the UK or the Eurozone.

All of the positive business news, which includes a rising industrial sector, points to steady growth, which is good news for those investing in stocks and shares. Combined with the money being pumped into several of the world’s economies and the low interest rates on offer, the indicators suggest that people might increasingly withdraw from bonds and move in to equities, as I predicted at the beginning of January.

“There’s a lot of money looking for a home and people are finally deciding the bond market is done and moving money into equities,” said Edward Simmons, managing director of Maine-based financial advisors HighTower.

My impression is that the US economy is now over the worst of it and into recovery.  Their belt-tightening and public sector cuts have far outclassed the relatively feeble measures taken in the UK, and now they are seeing an uptick in private sector investment.  Of course there are dangers and fiscal cliffs, not to mention the future tidal wave of unfunded entitlements. But for the moment they seem to have muddled through.


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