Dollars and Sense: Economic rising tide or financial flash flood?

S&P setting records. The Standard and Poor’s 500, an index of the 500 largest stocks in the country, keeps setting records. The S&P 500 went above 1,900 for the first time on May 23, and while it’s not making large gains or taking large losses on any given day, it does keep moving upward. The Dow keeps moving up, too, but the S&P 500 is considered a better measure of what’s going on in the broader market. So the fact that it has been at or near record highs for the past month is perhaps more significant than the Dow’s moves.

Mostly good news. Why are shares up more or less across the board? Lots of reasons. The Great Recession beat back the markets so severely, we’re seeing a bit of a bounce back. The Federal Reserve’s bond-buying spree is pumping money into the economy and inflating share prices. But it is fair to say that last week we did see some good news. The U.S. markets were closed for the Memorial Day holiday on Monday, but despite that, it was a pretty busy week for economic news. Orders to factories for durable goods rose 0.8 percent in April. That was better than expected. Demand for military aircraft led the way. Consumer confidence also emerged better than expected. The Conference Board’s index rose to 83, and is approaching pre-Great Recession levels.

M&A activity up. Merger and acquisition activity is also heating up. Long-time readers of this column may remember a couple of years ago when I said corporations had trillions of dollars on their balance sheets but were afraid to invest because of widespread fear about where the economy was going. So M&A activity is a sign of future confidence on the part of corporate leaders. This week we got news of several deals, including a bidding war between Tyson Foods and food processor Pilgrim’s Pride for sausage-maker Hillshire Brands.

What about jobs? A drop in jobless claims, announced last Thursday, took that number to near 2007 lows. As we discussed last week and the week before, the jobs picture is still fuzzy. Lots of workers are not in the market. Lots of younger people, in particular, are having trouble finding jobs. But this one indicator is trending in the right direction, and investors seemed to like that. The markets rose on the news.

The view from here. I’m in the midst of a 1,600-mile drive from my home in Charlotte, N.C., to Manitou Springs, Colorado, where I’ll spend the month of June as scholar-in-residence at Summit Ministries. As I have driven through Knoxville, Tenn., Nashville, Tenn., Memphis, Tenn., and Oklahoma City on my way west, I’ve seen more construction cranes and construction projects than a year ago, and especially more than two years ago. But I’m also seeing rural areas that are getting left behind. One of those construction projects detoured us off Interstate 40 in rural Arkansas, and re-routed us through small towns that quick Internet searches tell me are losing population, with whole blocks of their main streets boarded up. There’s an old saying that a rising tide lifts all boats. What I’m seeing is a recovery that is not so much a rising tide as a flash flood, with government money turning cities like Washington, D.C., into boom towns, while other cities still experience drought.