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A Plunge, Snap Back, And A Goldilocks Economy

Stocks plunged in mid-September 2014 and bottomed on October 15. And then they erupted again -- upward.  By mid-November, the Standard & Poor's 500 Index -- America's largest publicly held companies -- had broken out to new all-time highs. 

Economic news in 2014 subjected investors in America's blue-chips to a roller-coaster ride.

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During 2014, stock investors have been subjected to nosebleed plunges in share prices, while steadily improving U.S. economic data drove stocks to new highs.  In mid-October, despite the quantitative easing program finally coming to an end and jitters over a possible global economic slowdown, a relentless bull market persevered.

According to independent economist Fritz Meyer, the source of the data in the accompanying charts and graphics, Americans are benefitting from a Goldilocks economy -- not too hot, not too cold, but just right. 

Institute of Supply Management in October reported an extremely strong 57.1 reading in its purchasing managers index (PMI).  Better yet, new orders came in at a huge 59.1.  New orders represent the most important component of the purchasing managers' index because it indicates strength you can expect immediately ahead. 

Car sales surged through the summer, hitting 17.5 million in August.  Housing starts are recovering in fits, with high month-to-month volatility accompanying a slowly unfolding recovery.  Nonetheless, housing starts doubled since the April 2009 bottom. 

Gasoline, diesel and fuel oil purchases constitute 2.4% of GDP and prices are declining.  That's because the U.S. is spending money for buying fuel in North Dakota, which is experiencing a gold-rush wild-west style boom.  A sustained 18% drop in gas prices, says Meyer, would boost overall U.S. GDP by 0.43% (18% of 2.4%).  That's a material boost to growth.  The shale revolution has reshaped America's energy future.  It's rewritten the world's geopolitical power structure and is really good for the U.S. economy.

On October 23, 2014, the Conference Board, in releasing its index of Leading Economic Indicators (LEIs), said:  "The outlook for improving employment and further income growth are expected to support the moderate expansion in the U.S economy for the remainder of the year."

How long can it last?  Will the Goldilocks economy become too hot?  The Fed's made clear it's not raising rates any time soon.  Slack in the labor market means there is no upward pressure on wages, the single biggest cause of inflation. That, in combination with a plunge in commodity inflation, will keep overall inflation low.  It's a Goldilocks economy, for now.


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