A Virtuous Circle Is Developing in America ... More Jobs = More Income = More Confidence = More Spending = More Jobs

We are beginning to experience a virtuous circle of growing consumer confidence in our U.S. economy.

That will translate to greater economic activity, and since our economy is 70% dependent on consumer spending, we should see the following ---- more spending leading to more sales leading to more production leading to more jobs leading to more income leading to more spending --- and so on in an upward economic spiral.

Not a fast developing spiral to be sure, but a virtuous, continuing and most welcome spiral at that.

In case you can't tell, I'm getting more optimistic that the "storm" is over and the rebuilding phase has begun in earnest. The next five years are going to be a whole lot better than the past five years have been. That's my bet and my hope as well. The "animal spirits" are returning to America.

In my opinion, the correct answer to the question Will Gains In Jobs Build Confidence? is a definite YES:

"The job market is getting stronger, bolstering the U.S. economic recovery at time of uncertainty at home and slowing growth overseas.

October's job gains, combined with revisions to earlier data, mean U.S. employers have now added more than half a million jobs in the past three months, and more than 2.3 million over the past year. That still leaves a massive 3.8-million-job deficit compared with when the recession began. But it has been enough to push the unemployment rate below 8% and to help boost consumers' confidence in the economy to its highest level since the recession.

More importantly, there are signs that the improving jobs picture is building self-sustaining momentum, with job growth leading to higher spending, and higher spending leading to more hiring. Some of the biggest job gains in October came in sectors that benefit most directly from increased consumer demand: Retailers added 36,000 workers, the most in nearly two years. Restaurants added 23,000 workers, the fifth straight month of better than 10,000-job growth.

This isn't the first time the economy has seemed to gain momentum, and economists are wary of another false start. The recovery—both in jobs and in broader economic growth—remains weak by historical standards, especially given that severe recessions have tended to be followed by strong rebounds. In the 1980s, the economy posted 11 consecutive months of 250,000-plus job growth and five straight quarters with an annual growth rate of over 7%. This time around, the economy has struggled to string together even two straight months of such strong job gains, and has yet to post a single quarter of economic growth at a rate above 4.1%.

"There's been many times in this recovery when it's looked like a virtuous circle was building, and then we had another phase of disappointment," said Nigel Gault, chief U.S. economist for the forecasting firm IHS Global Insight. "So I don't want to get too optimistic at this point."

Still, economists point to several factors that suggest the recent signs of improvement could be sustainable. Earlier phases of the recovery were driven largely by external factors: government spending, which faded with the end of the stimulus, and strong exports, which have weakened along with the global economy. Consumers, whose spending accounts for about 70% of economic output, stayed on the sidelines due to crushing debt loads and sky-high unemployment.

This time it is consumers pushing the economy forward. Three years of economic recovery, however sluggish, have given families a chance to rebuild their shattered finances. Household debt payments, as a share of after-tax income, are at their lowest point in nearly 20 years. Access to credit is improving. Low interest rates are giving some homeowners a chance to refinance, freeing up more of their income for other uses. Most critically, home prices have finally ended their dramatic decline and are even rising in many markets.

"The economy is gradually healing right now, and there is evidence of that on multiple fronts," said Dean Maki, chief U.S. economist for Barclays Capital.

The rebound is far from robust. Job growth has picked up from the spring, but hasn't accelerated meaningfully from last year. Confidence is strong, but actual consumer spending increased at a modest 2% rate in the third quarter. Incomes are barely rising after adjusting for inflation. Nothing in the recent data, Mr. Maki said, changes the overarching narrative of a slow recovery.

The recovery has been especially slow for the nation's 12.3 million job seekers. Nearly 3.6 million Americans have been out of work for a year or longer, and 2.4 million more don't count as unemployed because they have stopped actively looking for work. The share of the population that's working or looking for work ticked up in October but remains near a 30-year low.

An improving job market and stabilizing home prices could help provide the economy with a cushion that it has lacked for much of the recovery. When the economy stumbled in early 2011, growth came to a near complete halt—gross domestic product grew at a 0.1% pace in the first three months of the year. This year, the economy stumbled again, but with less dire results—growth slowed to 1.3% in the second quarter before rebounding to 2% in the third.

Such a cushion could well be necessary. Recession in Europe and slowing growth in China have hurt exports and the manufacturing sector, which added a modest 13,000 jobs in October. An even bigger threat looms in the form of the "fiscal cliff," billions of dollars in tax increases and government spending cuts set to take effect at year-end. Economists have warned that if Congress and the President allow the cuts to go forward, the economy will almost certainly slide back into recession. There is evidence that businesses are already pulling back on spending as a result.

If politicians manage to steer clear of the fiscal cliff, however, that delayed spending could provide an economic boost. That, combined with the stronger job market and more optimistic consumers, could yield stronger growth in the new year, said Jim O'Sullivan of the research firm High Frequency Economics.

"Right now, the odds favor 2013 being better than 2012," Mr. O'Sullivan said."

SUMMING UP

What could go wrong? Excessively partisan political bickering could take us down the wrong path, of course. Or even more likely, not take us down any path due to continuing gridlock in Washington in 2013 and beyond.

In other words, our "public servants" have the power to snatch defeat from the jaws of victory by continuing their bickering and taking us over the fiscal cliff at year end.

Or they could fail to agree on a workable compromise on energy independence, deficits, the debt, entitlement reform and taxes next year.

Or lots of other things could go wrong, such as events in the rest of the world and beyond our control.

But what could and will go right is the fact that we can build on the economic progress that we are now making.

Now that the economy is growing again, and consumers are feeling better, after the election we'll come together as a nation and do what's right for We the People.

We're truly an exceptional and unique nation of ordinary Americans doing extraordinary things --- together. That's our greatest strength and always will be.

When we act as Americans, we always win. And so we will --- once again.

Solving our own problems is what we do best.

Thanks. Bob.