Five Reasons for Optimism on the Economy

The economy remains fragile as it fights to climb out of its worst recession in decades. There are still obstacles to overcome and some bad news to digest here and there. But there are also plenty of reasons to believe that recovery is coming. Hopefully, recovery will mean stability in housing prices, recovery of some of the millions of jobs that have been lost, and a feeling for hope among consumers instead of fear. Here are five areas that we can be optimistic about:

- Corporate Earnings Have Been Better Than Expected: It’s important to realize that this doesn’t mean that companies are making more money than ever before. However, analysts looking at today’s economic climate forecast what corporate results are likely to be, and the majority of S&P 500 companies reporting have beaten those estimates during the most recent quarter. The downside is that earnings are being generated from cost cutting initiatives more than from increasing sales, but companies that are running more efficiently today will benefit when sales begin to grow again.

- Technology Companies Are Thriving: One of the areas that the U.S. has a competitive advantage over most other countries is in the technology sector. The last three months have seen very positive results from technology companies who are generating impressive cash flows in spite of the weak economy around them. These companies are continuing to innovate and are driving a stock market rally and providing plenty of good news for investors and consumers.

- Interest Rates Are Staying Low: This may not have a huge impact on consumers in a day-to-day sense, but low interest rates are simulative for the economy as a whole. Low rates mean that companies can have access to capital at a reasonable price and low rates on consumer loans can spur spending on big ticket items, spending that can lead the economy from contraction into growth. Low interest rates have also help to stimulate lending activity with homeowners looking to refinance as well as home buyers looking to buy homes in a depressed real estate market.

- Inflation Remains Low: The inflation numbers that are being released show very little increase in inflation, a big relief after the billions of dollars that have been created to revive the economy and the financial system. Most agree that inflation is coming, but the outlook remains stable for inflation over the next 6-12 months, which will allow the Fed to keep interest rates low.

Banks Are Stabilizing: We’ve seen several banks fail this year, but more importantly, we’ve seen banks take a long, hard look in the mirror and realize that serious changes were in order. Banks are now operating from stronger capital positions and scrutinizing every asset on their balance sheet much more carefully than they did leading up to this recession. They are also being more selective in making loans which will help us avoid a repeat of the subprime mortgage mess that fueled this recession.