After a generally gloomy second half of 2011, key indicators in the US have been improving in recent months. This has boosted stock markets and, during late February and early March, the benchmark Dow Jones Industrial Average traded over 13,000 for the first time since the 2008 financial crisis. It subsequently eased back a little but remains up on the year and well above its recent low of 10,402 in October 2011.
Data in the jobs market has been particularly positive. The unemployment rate unexpectedly fell at the beginning of February to 8.3 percent, the lowest level in three years. Private sector job creation accelerated ahead of expectations, offsetting ongoing layoffs in the public sector as the government works to narrow its deficit.
The number of people newly claiming unemployment insurance each week fell to an average of 355,000 in February, the lowest level since early 2008 and half its peak in March 2009. It is close to the level at which the US economy can create sufficient new jobs to balance both job losses and the demand from new entrants to the labor market.
Most notably, the Conference Board's consumer confidence index rose sharply to 71. This was 9 points up on January and the second highest reading in four years.
Even the moribund housing market has shown some positive signs. The number of new housings starts has been consistently high. Having spiked up in November, the number of new housing starts has remained around 700,000 a month. These are the highest levels since the 2008 crisis, which was itself closely related to housing sector problems.
At the end of February, the stream of positive data included an upward revision to 2011 fourth quarter GDP from 2.8 percent to 3.0 percent, the fastest growth in 18 months. However, much of the GDP growth was the result of a build up in inventories, resulting in annualized growth in private investment of 20.6 percent, offsetting a 4.4 percent contraction in government spending.
QNB Capital notes that the inventory build is unlikely to continue into the current quarter, and therefore growth is expected to ease back. However, annual growth in 2012 should still exceed the 1.7 percent seen in 2011, and is forecast at around 2 percent.
One disappointment amongst the recent stream of encouraging data was the national purchasing managers index (PMI), a key indicator of corporate activity. It eased back to 52 in February, after three successive months of improvement. However, any reading above 50 is understood to signal expansion and it is well above its low point of 33 in 2009.
The direction of the March PMI reading could be a significant gauge of the health of the corporate sector, according to QNB Capital. A second month of decline would likely dent confidence, whereas a positive rebound could substantially enhance the outlook for economic growth.
US officials remain cautions. The Chairman of the Federal Reserve, Ben Bernanke, stated recently that the fundamentals supporting consumer spending continued to be weak as real household wealth and income remained flat and access to credit was restricted for many borrowers.
In addition, the recent rise in oil prices could accelerate inflation leading to further erosion in consumers' purchasing power, which would threaten growth.
Despite these concerns, the overall picture remains optimistic. The US represents over a fifth of global GDP, and therefore developments there reverberate internationally. In particular, QNB Capital notes that a healthier US economy will directly and indirectly support demand for oil, and hence benefit the GCC economy.
