US Economic Momentum Impossible to Deny

• Employment index strengthened to a height not seen since May 1984;
  
  
• New Orders index increased to the highest point since December 1983;
  
  
• The Production index improved to 73.7 from 72.2, while new orders rose to 75.7 from 71.3. The barometer of production along with new orders rose to its highest level since 2004.
  
  
• Order backlogs are breaking out to multi-year highs while lead times for MRO supplies plummeted.
  
  
• The Employment index showed a marked improvement, rising from 58.4 to 64.1, which represents a multi-year high.

In other news today, the Commerce Department reported that consumer spending surged 0.7% in December. The increase was made possible by a 0.3% increase in personal income and a decrease in the personal savings rate to 5.3% from 5.5%.

The report confirms my hypothesis laid out in Potential for Big Upside Economic Surprises for USA in 2011 that there is substantial pent-up demand amongst US consumers in the aggregate and that a general decline in risk aversion would supercharge personal consumption through a reduction of the personal savings rate.

I reiterate my above-consensus forecast of 5.5% GDP growth in 2011. (See Fourth Quarter GDP Confirms Strong Growth Momentum.)

Equity exposure to accelerating US personal consumption and GDP can be achieved through investments in pro-cyclical stocks and equities in areas such as ETFs focused on the consumer discretionary sector, including Consumer Discretionary Select Sector SPDR (XLY) and Vanguard Consumer Discretionary ETF (VCR). Investors may also consider Claymore/Robb Report Global Luxury ETF (ROB). Technology stocks in the PowerShares QQQ (QQQQ) are highly leveraged to an accelerating economic cycle and are very attractively priced given their increasingly dynamic growth rates. I prefer the aforementioned options because traditionally cyclical sectors such as metals and mining are richly valued and may face some headwinds in the next few months due to accelerating inflation and interest rate rises in emerging markets.


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