I read a research paper made by the ING today about the US economy and it had some good points.

First, the unemployment rate might look impressive but it`s way below from the precrisis levels, especially when one considers U-6 unemployment rate (“those people who are working, but are only part time for economic reasons, or who are only tangentially attached to the labour force for one reason or another”).

figure 1 - u6 unemp

It also points out that the average consumer spending growth is approximately the half of what it had been between `98-`05 due to the household develeraging. I consider this moderate pace as a good sign because with the current expansive monetary condition there is a good chance for households to improve their individual balance sheets and accumlate savings as disposable income. The chart below showes that the beneficiary of the low yield enviroment is refinancing which strongly relates to lower debt service ratio. (but there is a sharp drop in it after the yield hike which depict the rate sensitivity)

figure 2 - refinancing vs purchase

The conclusion depends on how you interpret these information but the main equity indices look just fine so any improvement in the underlying conditions would drive the market higher. The lagging employment figures will improve with the ongoing compression of the gap between the US and Chinese labor costs and the energy revolution so the re-shoring activity is going to accelerate boosting the activity rate and the manufacturing sector.

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