There is no greater thing for me than to combine my love of Peyton Manning with my confidence in the phenomenal strength of the American economy in one blog post. Thanks to this piece, I can.
So why has the economy performed above expectations amid unexpected developments? The main explanation seems to be that, despite the Fed's desire to tighten monetary conditions, consumers and businesses, on average, still have access to cash, whether through cheap borrowing, better income and profit growth, or rising housing and stock market wealth. Accommodative financial conditions are proving to be the economy's Peyton Manning, quarterbacking the steady forward movement in demand.
Attractive bond yields, a rising stock market, robust profit growth, and, thanks to the recent fall in oil prices, more household buying power are allowing consumers and businesses to spend. Since nothing in the outlook suggests any sharp reversal in these stimulative trends, the economy should enter 2006 with much more momentum than seemed likely only a few months ago.
MUCH OF THAT STRENGTH, surprisingly enough, will be concentrated in the consumer sector, which has weathered the shocks of 2005. The GDP revisions show real consumer spending increased at an annual rate of 4.2% in the third quarter. That's better than the 3.9% pace previously estimated, and it occurred during a quarter when gasoline prices hit more than $3 per gallon.