Each week we get some signs that the nascent economic recovery is gaining traction. The U.S. dollar rallied for the fifth straight month due to the improving economy and low inflation. Previously bearish Goldman Sachs and Citigroup pulled back from positions that the dollar would weaken after taking losses last week. Economists’ predictions for the strength of the dollar rose on average 1.4% last month. The dollar gained against almost all major currencies last month with the exception of the peso. Many feel the strength of the dollar is an indicator that the economic recovery is legitimate and picking up steam.
Instability in Europe over Greek and Portuguese debt concerns has caused the dollar to improve versus the Euro. Alan Ruskin, head of currency strategy for RBS Capital Markets commented in a Bloomberg article that “the economy picked itself up off the ground. Compared to what it might have looked like from the view of March 2009, March 2010 looks very good“. As recently as a year ago, Ruskin predicted the downfall of the dollar saying “we are witnessing the end of ‘Rome’ on the Potomac”. It is likely that debt troubles in Spain and Italy will cause more pain in the Euro-zone.
Another positive indicator is expected on Friday when The Labor Department makes its employment report. Consensus expectation is that 190,000 jobs were created in March, which would represent the biggest gain in three years. Popular opinion is that economic recovery will remain slow until the pace of job creation increases significantly. Unemployment is the largest hurdle for recovery in the housing market in particular. Unemployment in the United States continues to linger around 9.7%.
Consumer spending was up for the fifth straight month in February, increasing .3%, a modest but promising increase coming despite the poor weather throughout February. Income growth was stagnant, however, showing no gains in February. 2.5-3% growth in the economy is expected in the first quarter of 2010, compared to 5.6% growth rate in fourth quarter 2009. Wage growth will probably not occur in earnest until the labor market improves substantially.
What do you think? Are the latest indicators signs of a recovery or not? Join our discussion below.
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