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Depending on who you ask, the global economy is either on the brink of recovery or poised for ruin. The U.S. stock markets stepped into February with five-year highs in tow, which to one investor means a rotation into equities, and to another it’s the first chapter of painful consolidation. Preliminary data suggest that fourth-quarter GDP unexpectedly contracted a tenth of a percent, which to some is a sign of underlying weakness and to others just a speed bump on the road to recovery.
It’s not a perfect analogy, but if the economy were a fleet of vehicles (sputtering along at a federally-mandated average of 35.5 miles per gallon), then the Federal Reserve would be the lead car. The speed limit is 2 percent inflation, the finish line is 6.5 percent U-3 unemployment, and the rules are near-zero interest rates (which the markets are now addicted to, despite diminishing returns) backed up by tremendous asset purchases.
As far as anybody can tell, the whole mess is, over time, moving forward. No one seems sure exactly how fast it’s moving, or whether it’s meandering off course at any given point in time, but the trends suggest progress. This is evidenced by a string of indicators which all generally point in the same direction, perhaps the most important of which are the labor market reports…
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