U.S. economy reports strong bill of health


The latest economic data showed us what we at Simply Money Advisors already knew and have been telling you: the U.S. economy is healthy.

Retail sales (how much you’re spending at stores) surged 1.6% in September compared to August. This was mostly due to post-hurricane spending on cars and gasoline.

But the story is also the same when you look at ‘core’ spending (total retail sales minus food, gas, auto, and building materials): over the past 12 months, core retail sales have risen 3.3%. This bodes well for the U.S. economy, as economic growth is expected to be about 2.7% in the third quarter (July, August, September).

A healthy U.S. economy means the Federal Reserve (Fed), our nation’s central bank, remains on track to raise short-term interest rates in December. Last week, the Fed released the minutes from its September meeting, which showed Fed officials expect the economy to keep growing.

However, some members of the Fed are becoming more concerned about inflation not increasing to more normal levels from its current low level. The Fed's preferred inflation measure is only 1.3% higher over the past year, and the Fed would like this number to be closer to 2%.

Despite this, Fed Chair Janet Yellen stated on Sunday, October 15th that she expects inflation to increase as the economy grows. There is currently a 77% chance of a short-term interest rate hike in December.

The healthy U.S. economy also means that large companies will see growing earnings. We are in the part of the year when many companies begin to report how much money was earned in the third quarter.

The Simply Money Point 

At Simply Money Advisors, we’ve said before many times that company earnings are the main reason for whether stock prices are rising or falling. When the economy is growing, earnings for all companies when grouped together also grow.

We expect earnings to continue to grow for the foreseeable future, especially because the economy is growing with little risk of recession. This is good news for the value of any stocks you may have in your investment mix.

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