Even though the markets are feeling pessimistic, the economy appears headed into a rare, but oft-predicted, scenario of strong growth and low inflation.Whenever Wall Street starts talking about a "Goldilocks" scenario for the economy, investors should be wary. The term refers to a scenario where economic conditions are neither too hot nor too cold, but just right -- a period of strong growth, but little inflation.

It's easy to see why pundits seem to trot out the ideal -- and unlikely -- term as often as possible: Such a scenario makes it easy to peddle stocks and make lofty economic predictions.

Investors could be forgiven for dismissing this prospect as a fairytale. But now, even as markets fixate on all the tragedies unfolding and investor sentiment hits new lows, the U.S. economy may be the closest it has ever come to justifying a "Goldilocks" outlook.

Manufacturing Boom

The manufacturing sector, after all, is embarking on the type of boom that has historically coincided with the start of major bull runs. Meanwhile, core inflation remains subdued.

In the past, declarations of Goldilocks scenarios have often come too early -- or been downright catastrophic. For example, many pushed the outlook during the winter of 2009, in the wake of the financial crisis, but were proven wrong: The economy still had plenty of challenges to muddle through.

High-profile pundits even forecast the scenario prior the savage downturn, a position that -- in retrospect -- could hardly have been more disastrously false.

But the evidence, this time around, is compelling.

A long series of evidence, including data from Thursday's Philadelphia Fed Index, has been indicating a U.S. manufacturing renaissance. And a look under the hood paints an even stronger picture of growth.

At 43.4, the index registered the highest reading since January 1984, a point that coincided with the start of among the largest sustained economic expansions in U.S. history. Economists had predicted the index would drop to 30 after roaring growth the previous month.

Orders and Optimism Rise

The new-orders index, meanwhile, picked up to 40.3 to post the highest reading since November 1983, economists at Ned Davis Research wrote in a client note. Shipments and unfilled orders reached their highest values since the summer of 2004.

Firms' optimism about prospects for the next six months, meanwhile, rose to its highest level since February 1993, when the U.S. economy was about to turn the corner following a different recession.

That optimism translates into business spending. More firms plan to increase their capital expenditure in the next six months, bringing that component of the index to its highest level in over a decade.

Industrial production also has grown 5.6% from a year ago, according to Ned Davis Research. The business-equipment segment, in particular, has gained 14.5%, representing its fastest yearly pickup in 13 years.

Doom and Gloom

Doomsayers have long warned that the turnaround was unreal, and some continue to insist that another downturn is around the corner.

"The uptrend that began in early July has come to an end," David Rosenberg, chief economist of Gluskin Scheff, wrote in a note to clients Friday. "Evidence is mounting that the economy and corporate earnings are losing precious momentum."

But the conference board's closely watched Leading Economic Indicators paint an entirely different picture.

The index rose for its eighth straight month in February, and its annualized six-month rate of change accelerated to 8% from 6.5% to mark the highest level in 10 months, Ned Davis Research notes.

With plenty of slack in the economy and labor markets, meanwhile, inflation continues to be subdued.

So while it's understandable that investors are cautious -- they've heard plenty of Goldilocks predictions in the past, only to be burned badly -- the scenario is now probably as real as it has ever been.

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inasctg56

I guess it's okay with you that Boehner is cutting the IRS so his friends with offshore accounts can get away with not paying their share of taxes. Or that he is not addressing jobs or illegal immigration.

March 22 2011 at 8:43 PM Report abuse rate up rate down Reply
inasctg56

This is not the only report - there have been many and you can look up on line the increase in manufacfacturing and exports for the last 19 months. All due to better trade agreements and enforcing our existing trade laws. And even though we have seen 19 months of manufacturing and export gains, President Obama continues his goal of increasing our exports with South America. The gop's agenda: cutting jobs and wages, eliminating collective bargaining, and working for corporations to make record profits overseas. You people are fools for licking the gop's boots while they are screwing you.

March 22 2011 at 8:41 PM Report abuse +1 rate up rate down Reply
jbarry40

WOW.......what are these guys smoking, can I get some, tading volume is at a clear low point, the same guys are buying and selling to eaqch other thats whats keeping the market up and to ad to it we have yet to see the oil price increase come through the supply change, and then the Feds will have to raise rates to keep inflation under control and there goes all growth (no more cheap money).....
Honey...Goldilocks is living in China, she moved out of the States in late 2007 and she not comming back anttime soon.....

March 22 2011 at 4:48 PM Report abuse -1 rate up rate down Reply
martinsportraits

It is certainly no irony that this scenario is based on a fairy tale........If you really believe this economy is some kind of recovery you may need psychiatric care! The truly difficult times haven't even started yet!

March 22 2011 at 4:34 PM Report abuse -1 rate up rate down Reply
bhawkes328

YES IT COULD...BUT DONT FORGET GOLDILOCKS GOT EATEN BY THE BIG BAD WOLF...

March 22 2011 at 8:40 AM Report abuse -1 rate up rate down Reply
mrstiffy

inasctg56, What a pitiful life you must lead trying so desparately to defend your charlatan hero on the financial blogs. The monkey with the golden tongue will go down in 2012 along with the iminent downturn of the economy. Get a life!

March 22 2011 at 12:11 AM Report abuse -1 rate up rate down Reply
hombrenice7

The last I heard our national defecit was 14.3 trillion dollars..... now if that is not bankrupcy.... can someone tell me what is?

March 21 2011 at 9:55 PM Report abuse +1 rate up rate down Reply
1 reply to hombrenice7's comment
hombrenice7

Ihave been saying it all along with lots of other people Iam not an authority on the subject of economics..... but the beginning of all this economic disaster worldwide began when president Nixon did away with the gold reserve... and later came the "great" president Reagan and did away with the Usury Federal Law that was there to control interest rates charged by lending or credit institutions.... to 'create competition' every time a republican uses that expression the lower middle class and the poor better run for cover.

March 21 2011 at 9:34 PM Report abuse +1 rate up rate down Reply
jhrochesterny

As I remember it, wasnt this happening in the 90's when Bill Clinton was President? we had a good economy,low inflation and there were jobs..and no huge deficit either. Wait until gas goes a bit higher and we will be right back where we were in 2009.

March 21 2011 at 8:51 PM Report abuse +2 rate up rate down Reply
consurvative

When 2012 gets here amd we have the Regressives out of power in the Senate , and President Trump is saying Barrack You're Fired.....then we will have some Hope , and more than just change in our pockets.

March 21 2011 at 8:18 PM Report abuse +3 rate up rate down Reply