The good news is pretty good

Stocks are plunging, but new numbers show that the US economy is still recovering.

By Jim J. Jubak May 5, 2010 2:59PM

Jim JubakYou'd never know it by looking at plunging U.S. stock prices, but the economic data this week have been solid. 

The numbers point to a US economic recovery that is at worst chugging along and that at best might even be picking up speed.

So, for example, factory orders for March showed a big 1.3% increase. The consensus among economists called for a 0.2% decline. The government also revised February's numbers to show a 1.3% increase instead of the earlier 0.6% gain.

The biggest part of the gain in factory orders came from a huge jump in nondurable goods orders. That sector showed a 2.9% gain, the biggest increase since June 2009.

Pending home sales (a pending sale is one where a contract has been signed, so this number is therefore a good indicator of actual future home sales) showed a 5.3% gain. That was again above expectations, which were looking for a 5.0% increase. Prior month numbers were revised upward here too, to 8.3% from 8.2%.

There was good news on the financial front, too, as the Federal Reserve's survey of bank lending officers showing that big banks had actually stopped tightening their lending requirements and had even, in the judgment of bank officers, loosened requirements slightly.

Last week, the government reported that business investment climbed at a 13% annual rate. That's down from a 19% rate at the end of 2009, but that big increase was unsustainable. The recent number certainly keeps the momentum going.

And this morning, the jobs survey from Automatic Data Processing (ADP) showed that U.S. companies added workers for the third month in a row in April. The 32,000 increase was the most since January 2008.

Another survey, this one from Challenger, Gray & Christmas, showed that planned firings by U.S. companies had dropped 71% in April to the lowest level since July 2006.

Now, not everything is completely rosy in these numbers or in the U.S. economy. Consumers in April raised their spending, but only by saving less, for example. The bump in pending home sales is certainly at least partly the result of buyers rushing to beat the deadline for the expiring tax credit for home purchases. And the ADP survey of private employees doesn't always track with the official jobs numbers (which are due out Friday, by the way.)

But it is important to realize that while stocks are plunging and the news piles one negative on another (Is that a plague of locusts I see? Is it about to rain frogs?), the U.S. economic recovery is still intact. 

I don't expect this rebound to be anywhere near as strong as the economy has historically delivered after a recession, but it still looks like we can count on solid, if modest, growth in the world's biggest economy.

I've written about how to look for growth stocks in just this kind of economy several times over the last few weeks (try this post to get an idea of my thinking). And I think that perspective should guide your selling and, yes, buying, during what looks like a decent-sized correction. 

Jim Jubak doesn't own shares of any company mentioned in this story. 

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