Innovest Market Commentary for February

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The Economy

It finally looks like American consumers are starting to admit that they are feeling better about the current economic situation and the future direction of the economy. Both consumer confidence and sentiment rose in February, with the indices rising to 70.4 and 77.5, respectively, both reaching their highest levels in three years. It appears consumers are ready to move forward with a positive outlook regarding jobs and wage increases, which indicates that the economic recovery is likely to continue.

With the exception of housing, most of the U.S. economic data in February was positive. On employment, the U.S. labor market showed signs of improvement as jobless claims fell below 400,000, job growth accelerated with non-farm payrolls expanding by 192,000, and the unemployment rate dropped for the third straight month to 8.9%, its lowest level since April 2009. Retail sales continued their strong showing from December, with a 7.8% year-over-year increase, making it the fifth consecutive month with annual increases above 7.5%. Expansion in manufacturing and non-manufacturing continued to be very strong. The ISM reported that factory activity expanded at 61.4% in February, its fastest pace since 2004, and that service industries jumped to 59.7%, its highest reading since August 2005. (Readings above 50 indicate an economic expansion.) Since the U.S. economy is heavily weighted towards the service sector, the strong ISM service index is good news and is consistent with annualized GDP growth of roughly 4 percent.

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