If new highs emerge, there has been no change in the game. Robots are still ruled by the old boss an...
Consumers lag but business confidence builds on recovery
02/26/2010 1:18 pm EST
Today’s (February 26) revised numbers for U.S. GDP (gross domestic product) show the economy grew at a faster than expected 5.9% in the fourth quarter. That’s above the 5.7% growth in the initial numbers for the quarter reported last month.
The extra growth came from inventories—which accounted for 3.9 percentage points of growth, more than initially reported—and from business investment in software and equipment. Investment in those categories grew at the fastest rate since 2000. Purchases of equipment and software increased at an 18.2% rate in the quarter.
Contrast those positive economic trends with the bad news today and earlier this week on consumer confidence.
University of Michigan index of consumer sentiment fell to 73.7 in February from 74.4 in figures announced today. On February 23 the Conference Board reported that its index of consumer confidence dropped to the lowest in almost a year. The index of current conditions, the part of the Conference Board survey that looks at attitudes about the economy now fell to its lowest level in 25 years.
Not surprisingly, consumer spending isn’t exactly growing by leaps and bounds. The revised fourth quarter GDP numbers show that in the fourth quarter consumer spending rose at a 1.7% rate. Economists were looking for a 2% rate of growth. In the third quarter consumer spending had grown at a 2.8% pace.
You don’t have to look very hard to find an explanation. Consumers who don’t have jobs don’t spend money.
The unemployment rate is 9.7% (by the official count) and number of people filing initial claims for unemployment has been on the rise in recent weeks.
Economists are projecting that unemployment will be 9.5% to 9.8 by the end of 2010.
But employment is a lagging indicator. In fact the official unemployment rate usually goes up in the very early stages of an economic recovery as workers who had stopped looking for work or who had accepted part-time work start looking for jobs again. Discouraged and under-employed workers don’t get figured into the official rate of unemployment.
At this stage of an economic recovery businesses, who have a real time read on current inventories and the direction of future orders, usually have a more accurate read on the pace of the recovery than consumers do.
At least that’s usually the case. And if this recovery is going to follow the historical road map, investors can expect consumer sectors to lag the industrial sectors as long as unemployment remains near current levels. For more on what sectors do best at what stages of a recovery see my post http://jubakpicks.com/2010/01/26/for-after-the-correction-think-industrial-stocks-market-history-says-this-is-their-time/
Related Articles on STOCKS
Is the correction complete? Is it safe to start to seek bargains in the market? Don’t jump too...
There’s a 30% chance that the strong trend resumption will continue above January’s high...
We initiated coverage on drug contract research company Icon PLC (ICLR) in May 2016; in 17 months, t...