October 2, 2012

U.S. Economy: A Tale of Two Cities

Despite all the concern about the fiscal cliff, the sovereign debt crisis, and saber-rattling in the Middle East, the U.S. stock market has posted a strong year-to-date gain.

With just three months left in the year, the Standard and Poor's 500 index is up 14.6 percent, while the NASDAQ composite index, which measures more than 3,000 stocks on the NASDAQ exchange, is up 19.6 percent.

Drilling down to the U.S. economy, it's like a tale of two cities.

In the "depressed" city, economic indicators such as orders for durable goods (e.g., cars, planes, machinery, and washing machines), GDP growth, and manufacturing activity are weak. In fact, last week the Commerce Department released its final report on second quarter GDP - the broadest measure of economic activity in the U.S. - and it wasn't pretty. It was revised downward to show just 1.3 percent growth. That's down from the previous estimate of 1.7 percent and is barely above stall speed.

Moving down the interstate to the "booming" city, we have other indicators showing a healthier economy. Housing prices and sales volume, for example, are both up in double-digit percentages from a year ago. Consumer confidence is at a four-month high. On the jobs front, unemployment is still unacceptably high, but the unemployment rate has declined this year as has the number of people filing for new weekly unemployment claims. And, the biggie - the stock market - has risen steadily and recently hit a nearly five-year high.

So, which "economic city" will overtake the other as we head into the final stretch of the year?

Well, to a large degree, the answer may reside in the hands of the Fed, Congress, and the political dealmakers in Europe. The Fed's trying to do its part by greasing the economy with cheap money. Congress, on the other hand, has yet to step up to the plate and show it can prevent the fiscal cliff from tanking the economy. And, in Europe, Spain is in the crosshairs as market watchers nervously calculate the impact of each attempt - or non-attempt - to solve the country's huge debt and unemployment crisis.

While Dickens' Tale of Two Cities was a bit dark, we suspect the U.S. economy will eventually find a way to rise to the occasion, even if there are some additional bumps along the way.

Data as of 9/28/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-1.3%	14.6%	25.2%	10.7%	-1.2%	5.9%
DJ Global ex US (Foreign Stocks)	-2.0	7.9	9.1	1.1	-6.4	7.7
10-year Treasury Note (Yield Only)	1.6	N/A	2.0	3.3	4.6	3.6
Gold (per ounce)	-0.5	12.8	8.1	21.4	19.0	18.6
DJ-UBS Commodity Index	0.6	5.6	3.7	6.3	-3.6	3.4
DJ Equity All REIT TR Index	-1.3	16.0	32.1	19.3	2.2	11.5

HERE ARE A FEW STATS about wealth in the U.S. and in the world:

• There are 2,160 billionaires in the world.
• The combined wealth of these billionaires is $6.2 trillion.
• There are 187,380 people in the world worth at least $30 million.
• The combined wealth of the people worth $30 million or more is $25.8 trillion.
• Eighteen of the 40 richest people in the world are from the United States.
• The net worth of the median American family in 2010 was $77,300.
• The net worth of the median American family in 2007 was $126,400. The majority of the decline in net worth between 2007 and 2010 was due to the crash in housing prices.
• The top 10 percent of American households had an average income of $349,000 in 2010.
• The average net worth of these top 10 percent households was $2.9 million.

Sources: CNBC, Bloomberg, New York Times

Do any of these numbers surprise you? No doubt they'll be a hot topic for discussion as politicians negotiate the upcoming fiscal cliff situation.

Weekly Focus - Think About It...

"The most important thing in life is to stop saying 'I wish' and start saying 'I will.' Consider nothing impossible, then treat possibilities as probabilities."

—Charles Dickens, English writer and social critic

Best regards,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management

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