Is the U.S. Economy Doing Better Than We Think?

Unknown factors exist, but experts see positive signs.

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Last Friday, U.S. stocks rose to their highest levels since May following a jobs report that showed the economy added 163,000 jobs last month, the most in five months.

The report gave hope of a strong, sustained recovery to Wall Street, which has been faced with a series of conflicting reports in recent months. One day, there are signs that the economy is growing stronger. But it seems as if these reports are quickly overshadowed by worries that the United States could be heading into a double-dip recession.

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This has created a pervasive state of concern among investors on Wall Street. Consumer confidence has been down in recent months, and reports by large institutional banks concentrate on market risks as opposed to market opportunities. Most seem to see the U.S. economic glass as half empty.

But what if this glass is, in fact, half full? In recent weeks, U.S. News spoke with experts who believe there is underlying strength in the U.S. economy. If a number of economic and political issues can be resolved in a positive way, the economy could be poised for strong growth in the New Year, they say.

This is in contrast to most advice given by experts in recent months, preaching caution to retail investors. But if a stronger-than-expected comeback is on the horizon, now could be a time to get into the stock market, which remains relatively cheap. Those willing to accept short-term volatility could see tremendous upside in the long term.

Data mixed, but many signals are strong. Ernest Dawal, chief investment officer of wealth and investment management for SunTrust Banks, says he believes the U.S. economy is currently stronger than many have acknowledged.

"We've been a little bit on the side of the fence saying the economy may be stronger than other economists are giving it credit for," Dawal says. "It will continue to grow at modest levels."

He says one of the main factors in his assessment is the housing market. For years, the down market weighed on economic growth. But that is beginning to change, he says.

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"Housing will cease being a drag on the economy. Home prices are relatively still attractive. The pendulum between renting and buying will swing back to buying," he says. "Residential investment has been accelerating. Prices appear to be bottoming."

Dawal also says there are signs that consumers are willing to spend more than they have in recent years. "New orders seem to be accelerating. Retails sales seem to be growing. It's not growing as much as we would like, but it's growing," he says.

Andrew Tignanelli, president of The Financial Consulate, an investment advisory firm in Baltimore, says that assessment of the state of the U.S. economy depends on perspective. "There's a conundrum going on. There are a lot of good signs in the U.S. economy, but there are enough negatives to make you think about whether the glass is half full or half empty," he says.

Like Dawal, Tignanelli says consumer spending is improving. He adds that the recovery of the auto industry is also a big positive. "Auto sales tend to be a leading indicator, and car sales have been extremely strong for quite a while. They haven't fallen off the cliff at this moment," he says.

Unknown factors temper optimism. Dawal says that while he believes the economy is stronger than it appears, there are a number of factors that could turn growth negative. The outcome of the presidential election will affect the economy, as will the election of a new Congress.

"Everyone is still focused on what the government is going to do about the fiscal cliff," he says, referring to the expiration of the Bush-era tax cuts and other spending cuts set to kick in at the end of the year. If Congress allows both to occur, it would "put us into a recession," Dawal says.

[See Understanding the Fiscal Cliff: What It Means for Your Money.]

Tignanelli agrees that inaction in Washington would be disastrous. But other factors will also contribute to the country's economic fate.


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