RECOVERY has been a slow and often painful process, but as 2013 draws to a close, signs point to continued improvement in the U.S. economy, with stocks, gross domestic product (GDP) and consumer restaurant spending all signaling better days ahead.
Financial markets showed marked improvement in the early weeks of December, with the Dow Jones Industrial Average and the Standard & Poor's (S&P) 500 both setting records. At one point, the Dow closed above 16,000, the S&P closed above 1,800 and the NASDAQ closed above 4,000 — a feat that had never before occurred.
Stocks retreated somewhat last week, closing lower for four consecutive sessions heading into last Thursday's trade, but equities had been up for eight consecutive weeks, the S&P is up nearly 26% on the year and the NASDAQ recently notched a 13-year high.
The biggest drag on the market is continued uncertainty over the Federal Reserve's "exit strategy" from its current bond buying efforts.
Last month, the Federal Open Markets Committee unveiled its "long-run" forecast, which indicated a goal of moving interest rates toward 4-5%, but Federal Reserve Bank of Kansas City economist Nathan Kauffman told reporters last month that most signs pointed to holding off on any major shift in rate policy until 2015.
On the bond buying issue, however, change could happen as early as March, although recent job data suggest that cuts could come sooner — with a stronger economy giving the Fed a reason to trim its wick a bit on the $85 billion it spends each month buying bonds in an effort to goose spending and investment.
Slow and steady
Looking at the economy in general, most economists are pointing to continued growth, but of the slow and steady variety seen since the "Great Recession" of 2008-09.
"I expect the U.S. economy will continue to modestly expand in 2014 and avoid problems due to fiscal contraction and Europe," Ohio State University economist Mark Partridge said. "The U.S. performance looks much better when compared to other advanced economies around the globe."
Partridge said while the national economy has been recovering, growth has been restrained and is not likely to speed up until the market sees increases in national productivity sparked by further innovation.
He cautioned that although the share of national GDP driven by manufacturing has remained constant since the 1940s, the manufacturing sector's share of employment has fallen over time and will continue to do so next year.
"Unlike total employment, manufacturing's employment has far from recovered from pre-recession levels in the U.S.," Partridge said. "In terms of jobs, manufacturing of today employs very few people."
After two years of negative GDP growth, the U.S. economy posted gains of 1.8-2.4% from 2010 to 2012, and most forecasts for 2014 hover near 2% growth — exactly the type of modest expansion Partridge described in his forecast.
His notion of more tepid performance from the manufacturing sector, likewise, bears watching as the Federal Reserve Bank of Chicago's monthly Midwest Economy Index showed growth decreasing in the bank's five-state region during the month of October, led by a drop in the pace of manufacturing growth. The bank's territory includes Iowa, Indiana, Illinois, Michigan and Wisconsin — states in which manufacturing has traditionally played an important economic role.
At the opposite end of the spectrum, however, innovation and automation are expected to buoy a favorable global business climate for the agricultural machinery industry.
According to the latest survey conducted by the Agrievolution Alliance, a global network of agricultural manufacturers' associations, half of manufacturers polled described business as good or very good, with the corresponding Agritech Business Climate Index rising by three points.
The alliance said worldwide turnover in agricultural machinery is expected to increase 7% this year to $126 billion. Mechanization in the developing world and further automation in the crop and livestock sectors of the developed world are expected to remain major drivers of demand for new agricultural machinery and equipment.
Eating out more
Despite recent survey data from Oklahoma State University indicating that consumers are planning to spend less money on food consumed away from home in the coming months, the U.S. restaurant industry has seen same-store sales and customer traffic levels improve significantly in recent months.
Fueled by those improvements and a more bullish outlook among restaurant operators, the National Restaurant Assn.'s Restaurant Performance Index (RPI) hit a four-month high in October. The index is a monthly composite that tracks the health of and outlook for the U.S. restaurant industry. The RPI stood above 100 for the eighth consecutive month, indicating industry expansion (Figure).
Fifty-four percent of restaurant operators reported a year-over-year gain in same-store sales in October, up from 41% in September. Only 30% of operators reported a decline in October, compared with 40% in September.
Similarly, 43% of operators reported higher customer traffic levels in October compared with last year, up from 33% in September. Just 39% reported a decline in traffic year over year, down from 44% in September.