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Adviser believes recovery firmly entrenched

Most conversations about jobs and the economy in recent weeks are a bit more optimistic than those same discussions a year ago. But, the tone is hardly one of confidence about the future.

Here in Manatee County, an area which became very dependent on real estate development in the years leading up to the speculative bubble in residential property, that cautious tone can be excused, but shouldn’t become a fixture.

When analyzing the U.S. economy as a whole, and importantly the world economy, the evidence is lining up on the side of a strengthening trend that bodes well for continued growth. Realistically, there are headwinds that may keep us from returning to the easy times we fondly remember, but once underlying strength starts to build it tends to continue for a while. At least that’s the lesson of history.

So what’s going right? Confidence is an important part of a continued economic expansion. In December, consumers’ use of credit rose for the third month in a row. This comes after two years of contraction in the use of credit. When consumers use credit it indicates confidence they will have more money in the next few months. Of course this trend, like most others, will end up going too far, but for now it is welcome news.

Certain market sectors have sensitivity to the future of the economic cycle. Transportation and shipping stocks tend to falter when the potential for future growth is low, and display strength when growth is likely to continue. The Dow Jones Transportation Index has been leading the market higher in recent months. I suspect until we see this economically-sensitive sector start to suffer, we will see upward momentum for the economy as a whole.

Corporate financial health is building, and by some measures is at one of the strongest points in history. 70 percent of the companies in the S&P 500 beat the analysts’ estimates of earnings in the most recent quarter and total earnings are getting close to the record levels achieved before the financial crisis in 2008. Cash on corporate balance sheets is at the highest level in decades relative to total assets.

What about jobs? The topic near and dear to Florida and Manatee County’s heart is job creation. It is the key to resolving budget woes at every level of government. Job trends change direction slowly. Layoffs have to dry up before companies start hiring again. We now appear to have turned the corner in this area. New unemployment claims have been falling, and private sector hiring is rising. A precursor of future permanent hiring is the use of temporary employees, which has also been on the rise of late.

Other indicators including manufacturing strength, overall economic growth and stock prices have all been heading higher in recent months. It’s only a matter of time before we have another recession; stock market struggles and rising unemployment, but that time may be out in the future further than the cocktail party conversation would have you think. Until then, I suggest some optimism is in order.

Tom Breiter, president of Breiter Capital Management, Inc., can be reached at (941) 778-1900 or by e-mail at tom@breitercapital.com.

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