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Did The US Economy Break Out Of Its Rut In 2014?

The Undertow In The Job Market: Weak Wages (Part 1 of 5)

While low inflation gives disposable income and purchasing power a lift, a convincing improvement in wages remains elusive despite strong job creation and economic growth in the United States.

By most measures 2014 appeared to be the year where we saw the U.S. economy break out of its rut. The second and third quarters were the best back-to-back quarters of growth in over a decade. The strength in the economy finally extended to the labor market; last year the United States created new jobs at the fastest pace since 1999. Nor did these changes go unnoticed by consumers. By year’s end confidence was at its highest level since 2007.

Market Realist –

Did the US economy break out of its rut – Most measures seem to indicate so.

With record US stock prices (IVV), better-than-anticipated economic growth, and one of the best years for hiring, 2014 could indeed be called the breakthrough year for the US economy. With the economy expanding by a blistering 4.6% and 5% in Q2 2014 and Q3 2014, respectively, most economists anticipated the US economy to be on track to grow by 3% in 2015. The previous graph shows the strong growth in US GDP in the second and third quarters of 2014.

Market Realist – The labor market showed great signs of improvement with the monthly hiring increasing by more than 200,000 jobs for 11 straight months in 2014, as the above graph shows. The unemployment rate ticked down to 5.6%, within striking distance of the Federal Reserve’s target of 5.2% to 5.5%. Change in the Federal Reserve’s Labor Market Conditions Index (or LMCI), which derives its value from 19 labor market indicators, strengthened to 6.1 in December from 5.5 a month earlier. This is well above the 1.9 median reading estimates from 1976 to the present. The Fed’s LMCI can be seen below.

Market Realist – The strength in the US economy along with the fall in oil prices (USO) (BNO) has been cause for much investor optimism. Not only did 2014 witness dizzying stock records, consumer confidence was high too. The S&P 500 showed yearly gains of 11.4% for 2014, the Dow Jones industrial average (DIA) was up 7% for 2014, and the NASDAQ (QQQ) composite rose 13% over the year.

Market Realist – The consumer confidence index in January, as measured by the University of Michigan, clocked in at 98.2, the highest in 11 years. This can be seen in the previous graph.

But is it all as rosy as it seems when it comes to US economic strength? Did the US economy break out of its rut in 2014? We’ll explore this further in the series and find out the headwinds still facing the US economy today.

Continue to Part 2

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