The Economic Recovery Gained Momentum in December

As 2010 ended, the recovery continued to gain momentum in the U.S. A bird's eye glance at major economic indicators shows that most aspects of the economy got better, and some sectors improved more rapidly. Still, the recovery is having trouble taking deliberate steps forward: as in most months over the past year, several indicators hiccuped in December. The trend, however, appears to be a positive one overall.

This thesis is pretty clear through reviewing some of the most major economic statistics from December (click on it to enlarge):

month in review 2010-12.png

If we begin with the "Direction" column, it's appears that the economy is improving. Of the 15 economic measures shown, just four worsened. Some of those indicators that got worse are pretty significant. The poor performance of small business sentiment, in particular, is very discouraging. Smaller firms tend to be an engine for job growth, which the U.S. desperately needs right now. Consumer confidence would be worrying, except that we already know it grew significantly in January.

Meanwhile, 11 of the 15 indicators improved. Of those 11 that got better, eight improved more quickly or were worsening in November. This provides some hope that the recovery is accelerating.

Of those indicators that improved, it's important to remember to take the unemployment data with a grain of salt. Although the unemployment rate declined, this was mostly due to more Americans leaving the workforce. Moreover, the tally of 103,000 jobs added isn't particularly impressive at a time when more than 15 million Americans are unemployed.

But many of the other indicators show more tangible improvement. The healthy increase in home sales is particularly noteworthy, as housing market had struggled since the summer when the home buyer credit expired. Consumer demand in general appears to be growing, as spending and retail sales both increased.

As with all summarizing analyses, it's hard to draw any definite conclusions about the future from the data above, but it is generally pretty positive. It should be noted, however, that December can be a strange month, due to the holidays and year-end. As February begins, and January's economic indicators begin rolling in, we'll get a better idea of how much strength the recovery might gain in 2011.

Notes/Disclaimers about the matrix above:

  • This chart has been revised since it was last calculated on a monthly basis for October. Now, it's a little more quantitative, as it shows two months' values for each statistic and how each has changed over these months. I also dropped the verdict column, as the colors-coding should be enough.
  • This is by no means a completely exhaustive list, but it does take into account many important statistics.
  • It represents a somewhat quantitative summary, but no weighting has been used to create an economic index, so the reader can decide how important each statistic is for himself or herself.
  • There is some overlap.

Finally, for anyone who wants to dig deeper into the numbers above, here's a list of posts that covered some of these December indicators:

Income and Spending Up Strongly in December

New Home Sales Jump 17.5% in December

Existing Home Sales Surge 12.3% in December

U.S. Retail Sales Hit All-Time High in December

2010 Set a New Record for Foreclosure Activity

Small Business Sentiment Drops for First Time Since July

Unemployment Lowest Since May 2009, as Fewer Look for Jobs

Service Sector Continued Steady Growth in December

Should December's Dip in Consumer Confidence Worry Us?