Home Budget & Tax News U.S. Economy Poised for Strong Start to New Year

U.S. Economy Poised for Strong Start to New Year

There are plenty of reports and events coming up in the first week of the new year, so let’s take a quick look at the most important trends. Enjoy the holidays as we look forward to a prosperous New Year!

The Week That Was

The only significant news over the holidays was the report on income and spending for November.

Total wages and salaries in November were slightly above their peak in January. After adjusting for inflation, wages matched their peak. Total personal income and real disposable income were 3 percent above their prior peaks.

In contrast, consumer spending was 2 percent below its peak and spending after inflation was 3 percent below its peak.

With incomes slightly above and spending slightly below peak levels, it appears the overall economy has fully recovered even as pockets of weakness remain.

On the Way

The ISM business surveys on Monday and Wednesday will show the economy’s relatively strong performance continued in December.

COVID-19 Developments

The numbers of COVID-19 cases and deaths are finally moderating again. While waiting for the vaccines to be widely distributed, we owe it to ourselves and others to know what to do to keep from getting COVID and how best to treat it if symptoms appear.

Dr. Elizabeth Lee Vliet is one of the doctors who helped put together the Association of American Physicians and Surgeons’ (AAPS) guide to COVID treatment. In this highly informative one-hour video, Dr. Vliet stresses the importance of printing the guide so that you will know what to do if you or others develop symptoms of COVID-19. Vliet also explains how the virus progresses from one stage to another, the protocol for treating it, and how to make sure you have access to a doctor who knows how to treat COVID.

The AAPS downloadable guide explains what you can do to prevent and treat the virus.

The combination of more effective treatments and wider use of vaccines should lead to a continuing downward trend in cases and deaths in the year ahead. That will be good for the economy, if governors “listen to the science” and remove the lockdowns as the disease recedes.

Market Outlook

Stock prices have been mostly stable over the holiday season. As a result, we end one of the most disruptive years ever with the S&P 500 up 14 percent, placing it 12 percent above its underlying value.

Economic news this coming week will show the economy continued to expand at a healthy pace in December. Despite the impressive gains in many areas, employment remains depressed.

The polls regarding Tuesday’s election in Georgia are inconclusive. Betting odds show Republicans heavily favored to keep control of the Senate. If the GOP loses control, expect at least some temporary downward pressure on stocks.

Although the market is overvalued and always subject to corrections, stocks remain relatively attractive at present, with the Fed pouring money into the economy and keeping interest rates close to 0 percent.

Economic Fundamentals: positive

Stock Valuation: S&P500 over-valued 12 percent

Monetary Policy: highly expansive

Robert Genetski
Robert Genetski, Ph.D., one of the nation’s leading economists and financial advisors, has spent more than 35 years promoting the use of classical economic and investment principles for sound financial decisions. He heads ClassicalPrinciples.

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