U.S. Economy Looks Poised for Recovery in 2011

The stock market received its first piece of good news for 2011 when the unemployment rate dropped from its previous high of 9.8% to 9.4% in December. That's an especially positive sign since the unemployment rate had actually been slowly rising at the end of last year.

Payrolls increased by 103,000 last month, which suggests that private sector job growth is slowly returning. The last time the economy showed signs of improvement, much of it was based on temporary census jobs. Those jobs buoyed the economy but disappeared last fall. The assumption this time around is that these new jobs will be longer lasting than last summer's temporary government jobs.

Another bullish prognostication is the Conference Board's Employment Trends Index, which is used to foreshadow whether there will be job growth or job losses over the next few months. It rose 0.8% to 99.3, the biggest jump in nearly half a year. The index is predicting that job growth will continue for at least the next couple of months. This is great news for people learning how to find a job fast in this economy.

This recovery may be slower than what we are used to historically, but it is a recovery nonetheless. As more Americans are put back to work, this will lead to a ripple effect throughout the economy. Falling unemployment rates leads to increasing consumer confidence. More consumer confidence (along with the benefits of the Bush Tax Cuts extension) equals more consumer spending, which leads to greater private sector hiring to keep up with demand.

All of these trends are bullish in the long term for equities. The sector that should benefit the most from the improving job numbers is retail. Retail sales are just beginning to recover from the recession of the last few years. Holiday shopping was up 4% this year and foot traffic was up 1.8% the past two months. The holiday sales figures show a 28.9% improvement over the same period a year ago. Depending on your investment risk tolerance, it might be a good idea to adjust your personal investment portfolio asset allocation based on these trends.

I would expect to see increased foot traffic at stores like Saks Fifth Avenue SKS and Nordstrom JWN. Mid- to high-end retailers were hurt the most during the recession and should benefit the most during a recovery. It just was not popular to shop at high-end stores during the economic downturn as many consumers spurned these stores for cheaper retailers in order to save money.

This forced the more expensive retailers to heavily discount many items in order to unload inventory over the past year and a half. Things are already reversing - Nordstrom's sales were up 8.4% and Saks saw its sales increase 9.8%. There is no reason that these numbers will not remain high as long as unemployment keeps steadily creeping lower.

What are you thoughts on the US economy? Is there anything you plan on doing to benefit from an improving economy?

Mark Riddix is the founder of New Horizons Financial Management and writes about personal finance and investing on MoneyCrashers.com, one of the 40 top personal finance blogs. He writes a weekly column for Benzinga every Wednesday.