We often think of the stock markets as volatile, responding to this announcement of good news or another shock of bad news. What they really are is prospective, seeking to price stocks on the basis of future returns; the news factors into those decisions, but as a pricing mechanism the markets are intended to forecast economic performance.
If so, 2015 is going to be a banner year.
Stocks rose to records, above 18,000 in the Dow Jones index, and even lifted in areas of the world that have growth challenges in Europe and the Pacific Rim. If the stocks immediately reacted to one element of good news, a U.S. Commerce Department announcement, the rises also reflect the expectation that this isn’t a one-off.
The Commerce Department said U.S. economic output rose faster than the previous estimate of 3.9 percent for the quarter beginning in July. At 5 percent, that new growth rate is the fastest since the third quarter of 2003; the second-quarter growth rate was 4.6 percent.
Consumer spending and business investment were healthier. There was a stronger pace of spending than previously estimated on business equipment, intellectual property and commercial real estate.
If the economists’ projections hold up, the United States could see its fastest growth since 2005 in the new year.
Backing up the good news from Commerce was a survey report from the University of Michigan. Its closely watched index of consumer sentiment jumped to 93.6 this month, up from 88.8 in November. It’s the highest consumer survey rating since just before the recession of the last decade.
“Consumers have become convinced that growing strength in the national economy will result in continued gains in jobs and wages during the year ahead,” Richard Curtin, chief economist for the Michigan survey, told The Associated Press.
Perhaps buoying these consumers is the fall in gasoline prices at the pump. That is, obviously, not an unalloyed blessing for Louisiana, an energy-producing state; we’re seeing a pause if not a significant short-term downturn in oil and gas exploration as a result.
Nor were all the federal reports just before Christmas as positive as the overall GDP report: Sales of new homes fell in November and factory orders for big-ticket durable goods slipped.
Still, the overall positives of a growing economy lift Louisiana’s economy. And if the rising tide should lift even our crewboats, eventually, we also share in the risks of the broader world economy. Louisiana is a major exporting state, through the Mississippi and Calcasieu river ports. Better economic news from major trading ports in Europe and Asia, from Taiwan to South Korea to Japan, will be good for us in Louisiana.