Economists to Americans: Don't worry, be happy

Although Bobby McFerrin's 1988 hit "Don't Worry Be Happy" wasn't about the state of the U.S. economy, it accurately sums the message many economists are giving investors.

Despite the plethora of headlines that are worrisome about everything from the Ebola epidemic to the recent stock market volatility to the cooling of Chinese growth, many economists remain optimistic about the prospects for U.S. heading into the holiday season.

Indeed, signs of the improving economy abound. Employers have added jobs for 55 straight months, including 248,000 in September, and unemployment has fallen below 6 percent for the first time since 2008. Even though consumer confidence fell in September for the first time in five months, gasoline prices have tumbled lately, and the housing market continues to improve.

"There are always headwinds for the economy," said John Canally, chief economic strategist at broker-dealer LPL Financial in Boston, in an interview. "The odds of a recession are not zero, but they are pretty close to zero based in the data that we have seen."

Financial pundits have worried for months about a slowing Chinese economy. In response, the world's most populous country is set to unveil a broad set of reforms, such as an overhaul of the banking sector.

But it's important to remember that a slowdown in China is all relative. As Jim O'Sullivan at High Frequency Economics noted, China is still expected to grow at 7 percent this year, more than three times the 2.2 percent increase the International Monetary Fund projects for the U.S. in 2014.

How the economy performs may affect how the quickly the Federal Reserve ends its bond-buying program, also known as quantitative easing, and now generally expected to end this month. However, economists note that ending it probably will have little impact on consumer spending.

The key metric that many economists are watching is gasoline prices, which are closely correlated to consumer spending, particularly among those with lower incomes. According to GasBuddy.com, the average price for a gallon of unleaded fuel is now under $3, the lowest it's been since 2011. That means Americans are pumping roughly $100 million less worth of gasoline than they did a year ago.

And the latest Beige Book released by the Federal Reserve, which discusses current economic conditions, said most areas of the country are experiencing modest to moderate growth. The Fed also found that prices remained relatively unchanged. Wages, which have remained stagnant for years, are also starting to grow, albeit at a modest rate.

"You are not going to throw caution to the wind," said Chris G. Christopher Jr., IHS Economics' director of U.S. macro and global consumer economics, in an interview. He thinks holiday sales will be "relatively better" than last year when unseasonably cold weather and the government shutdown cooled consumers' holiday spirit.

Christopher expects spending for the December holidays to increase 4.2 percent. while PNC Financial Services Group's Gus Faucher sees a 4.5 percent increase. Both forecasts are more optimistic than the closely watched National Retail Federation forecast, which calls for an increase of 4.1 percent. Last year, sales posted a 3.1 percent gain.

"It's not going to be a fantastic year, but it's going to be a good year," Faucher said. "The best since the recession."