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Economists stay upbeat as markets see trouble

The U.S. consumer, that dynamo of the global economy, just took a step back.

Relax. It’s not that bad, economists say.

News Wednesday that U.S. retail sales unexpectedly declined in December reverberated through financial markets, but few economists read the report as a sign of trouble for the nation’s economy.

In fact, many economists say the U.S. economy is doing just fine.

So why did the markets react the way they did? The answer, in part, is that the report added to a wall of worry confronting investors. Topping the 2015 angst-list are the plunge in oil and other commodities, as well as slowdowns in China and Europe.

“It feels like a global recession when you look at the markets,” said David Hensley, director of global economics for JPMorgan Chase & Co. in New York. But looking at economic data, “we’re certainly not seeing anything that’s unnerving us.”

For the moment, the 0.9 percent decline in December retail sales reported by the Commerce Department has pushed back market expectations for when the Federal Reserve will start raising interest rates. It also has bond investors betting that inflation will stay low.

Forecasts change all the time. But before anyone panics over one economic number, here are four reasons to stay optimistic about the U.S. economy, which is still in the driver’s seat of global growth.

▪ December sales figures aside, U.S. consumers aren’t running scared. Yes, last month’s decline was the biggest in a year. But consumer spending probably rose at an annual rate of more than 4 percent during the fourth quarter as a whole, according to Ted Wieseman, an economist Morgan Stanley. The first quarter of this year is looking just as good, Wieseman wrote in a note Thursday to clients.

▪ The U.S. jobs market is perking up. Less than a week ago, investors were cheering news of another big rise in U.S. payrolls. In all, the economy added about 3 million jobs last year. “The U.S. is doing great relative to the rest of the developed world,” said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.

▪ The plunge in oil and other commodities is mostly good news for consumers. Cheaper oil means cheaper fuel. And most economists say that’s good for global growth. The plunge in oil, for example, largely reflects an increase in supply, from shale and the like, rather than a decrease in demand. U.S. production of crude oil rose to 9.19 million barrels a day last week, the highest in Energy Information Administration weekly estimates going back to 1983.

▪ Bond yields are hitting new lows, but that doesn’t necessarily mean the entire world is about to sink into a deflationary spiral in which prices, wages and output fall in tandem. In fact, many economists predict wages in the U.S. will finally start rising this year. “It’s just a matter of time before wage growth picks up,” said Mohamed El-Erian, a Bloomberg View columnist and an adviser to Munich-based Allianz.

Rich Miller is a Bloomberg reporter in Washington. Steve Matthews is a Bloomberg reporter in Atlanta.

© 2015, Bloomberg News

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