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The American consumer is coming back. Sales at US retailers grew a surprising .3% in February according to a Commerce Department report released this morning, but the two previous months were revised downward. Excluding autos, February sales rose .8%, also surpassing expectations. Economists expected sales to fall .2% due to bad weather across the country.

The US economy continues to blaze new paths to recovery. The week’s economic reports demonstrate how the world’s largest economy can grow even in the face of enduring impediments. With unemployment near 10%, housing prices in decline for the first time in recent memory, and confidence near all-time lows, the consumer is showing signs of life. The manufacturing and non-manufacturing sectors of the economy are coming back with improving signs of strength. Recovery is young and weak, but difficult to deny.

Today’s news from the government comes as welcome relief after a week of sub-par economic reports. The economy’s fourth quarter expansion of 5.9%, higher than initially reported, ranks as the best performance in six years, according to the Department of Commerce. The government’s initial estimate last month was 5.7%, where economists pegged the quarter’s growth. But the group most surprised is undoubtedly the US consumer whose dour mood unsettled investors earlier this week. 

The recent 8.2% dip in stock indices from their January 15th peak provides an opportunity for reflection. While market declines in general are not pleasant, one can understand investors are understandably squeamish after the 37% drop in 2008 and the peak-to-trough drop of 57% from October ‘07 to March ‘09. But ever since stock markets began, values have dropped then recovered only to go on to new heights. Our purpose today is not to predict the market’s next move, but to objectively examine its nature and demonstrate why worrying about the dips is needless and avoidable.

Stocks around the world took a turn for the worse yesterday as debt concerns from the Euro–zone mounted and first-time unemployment insurance claims came in considerably higher than expected. Today’s good news on the overall unemployment rate slowed the market’s decline, but hasn’t stopped it. The S&P is now down 7.6% from its January 19th peak; however prices remain nearly 60% above their lows of March 2009. Alternatively, US Treasuries are rising. They gained yesterday as investors fled to quality amid uncertainty in Greece, Spain and Portugal. Three to seven-year Treasuries were up .6% to .8% and 7-10 year Treasuries were up .8% to 1%. Gold fell the most since 2008, with April futures losing 4.1% to $1,066.60 an ounce in New York. The metal is down 26% from its high in early December as inflation has failed to materialize. 

Approaching President Obama’s Wednesday state of the union address, many expected he would steer a new direction, away from a decidedly liberal agenda toward the center. He obliged with more than a few promises on how he would do just that. He took a clearly more populist/centrist tone, berating bankers, rebuking congressmen and senators for partisan bickering, reminding critics of his many “tax cuts,” and doing it all in his own version of “I feel your pain.” He even nodded to the right on initiatives such as nuclear power and offshore drilling. He urged Congress to pass a new jobs bill, called for the extension of a big business tax break, and the creation of a small business tax credit. In a follow-through today, it is reported that the president plans to propose tripling loan guarantees for new nuclear reactors to more than $54 billion.

We will get to the economic data shortly, but a good self-evaluation is appropriate every so often, particularly at the first of a new year. When you consider your investments do you make your most significant decisions according to a plan which looks well into the future, or do you tend to let the daily price, data, and tongue wiggles wag those decisions? Consider carefully, because the answer could well impact the quality of your lifestyle.

“If pro is opposite of con, then what is the opposite of progress? Congress!” Found in the US House of Representatives restroom

The critical number for our economy is in; unemployment remains at 10%. While the headline number shows signs of topping, a significant rebound in job growth remains frustratingly elusive for the economy and for an administration that could use a boost. The economy lost an unexpected 85,000 jobs in December after showing the first increase in payrolls in almost two years. Economists fear that this recovery will be jobless just like the prior two.

Last week we discussed the possibility of a “W”-shaped recovery/recession. In such a scenario the economy rallies for a few quarters (two or three) then falls back into recession lacking sufficient momentum for recovery. Our economy started its growth trajectory surging 2.8% during the third quarter and is expected to continue growing for several months. The Conference Board released its index of leading economic indicators showing steady economic growth continuing into the new year. But the recovery is saddled with issues that will not quickly dissipate.

This week’s economic reports brought further evidence of economic recovery. The Commerce Department reported today that retailers saw a 1.3% increase in November sales. And it was privately reported that hiring by US discount, grocery, restaurant, and specialty chains in November rose to the highest level in 2009, signaling that retailers may be anticipating a gradual recovery in consumer spending. Consumers are still buying autos without government incentives. And manufacturers are especially optimistic as they look forward to 2010 sales growing by 5.74%, as reported by the Institute for Supply Management.