Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Despite disasters, 2005 not a bad year for America's economy

- by Alan Duvall 

Published in Dayton Daily News January 8, 2006

By most measures, 2005 was a remarkable economic year for America.

Despite natural disasters, rising interest rates and oil prices, the U.S. economy grew at a rate exceeding 3.5 per cent and created approximately 200,000 new jobs per month. 

Nevertheless, on the last trading day of the year, stock market prices tumbled.  The culprit – an inverted bond yield curve.  You see, 2-year Treasury bond rates briefly edged higher than 10-year bonds, a subliminal sign recession may be around the corner. 

Why the reliance on such an obscure economic indicator?  Certainly, alternative indices exist.  

Many investors simply follow the progress of the Dow Jones Industrial Average.  Since the Dow registers market values of only 30 top U.S. companies, others defer to the S&P 500 index due to sheer numbers of companies represented.  There are also studies following mid-cap stocks of smaller size and technological stocks in the NASDAQ market. 

But those indexes merely follow the progress of corporate earnings.  Economic geeks may seek to climb loftier peaks in search of divine guidance.  

There are studies which track the status of the Consumer Price Index (cost of living changes), employment statistics, housing statistics, manufacturers’ orders and the mystical world of the M2 money supply.  Succinct studies of relevance only to back-room number crunchers. 

For a more diverse audience, institutions generate studies based upon a conglomeration of statistics.  And so the Conference of U.S. Leading Economic Indicators was born – a composite study of diverse economics statistics yielding a global conclusion regarding the state of American economics.   Recent conclusion – seven out of ten financial factors increased in November signaling continuation of a healthy economy. 

Other studies poll opinions of differing classes of individuals.  The Wall Street Journal surveyed 56 noted economists who predicted 2006 U.S. growth of over three per cent.  A CEO Confidence Survey measures future financial expectations of corporate leaders.  And a Consumer Confidence Index compiles views of 5,000 statistically selected individuals, relevant because consumer spending traditionally accounts for about two-thirds of the nation’s economic activity. 

Despite these tools, statistically-challenged individuals may elect to simply follow old adages – bad things happen in October; market falls if interest rates rise; given time casinos win.   

But one conclusion is undeniable – if forecasting the future was easy – we would all be millionaires.  

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.