Green Shoots Have No Roots

 
Economic Outlook
May 05, 2009 Posted by:
In the white room with black curtains near the station
Black-roof country, no gold pavements tired starlings
Silver horses run down moonbeams in your dark eyes
Dawn light smiles on your leaving my contentment

-Cream

Just as some lyrics make absolutely no sense, so do some economic data points. One could characterize last week's data flow as 'barbelled' with some very positive-sounding news and some very negative-sounding news. At the end of the day, however, no fundamentals have been affected, leaving the astute follower with a difficult time turning positive.

  • The Federal Reserves Open Market Committee met and determined it couldn't cut interest rates any further, and nor is it time to begin taking away the punch bowl quite yet. It does seem, however, that the committee views the economy as less negative, having stated the "economic outlook has improved modestly." Less negativity now equals a positive, I suppose.
  • The first quarter's Gross Domestic Product numbers were released, disappointing solidly. Growth put in a showing of minus 6.1 percent, versus expectations of only a 4.7 percent drop. Put into dollar figures, economic activity slowed by $181.2 billion in the first quarter, led by non-residential fixed investment and a drop in inventories. The "glass-half-full" crowd crows when inventories drop because that means they'll have to be rebuilt in the future. Or do they?
  • Consumers were apparently giddy, as shown by spikes in both the Conference Board's consumer confidence index and the University of Michigan's survey of consumers. Historically, consumer confidence measures are a good lagging indicator of where the stock market has been. Put another way, respondents answer these surveys based on how they feel, not necessarily based on how they will behave.
  • Having said that, personal consumption rose at a hopeful 2.2 percent rate in the first quarter. However March's Personal Consumption Expenditures data was disappointing. In addition, personal income in March declined 0.2 percent after a 0.3 percent decline in February. It seems the hope of a sustained increase in consumer spending is fading.
  • The stock market stole many headlines, with the news including a 7.4 percent increase in April, which capped the strongest two-month move in seven years. But stock prices remain depressed with the S&P 500 index down 36 percent over the past 12 months.
  • The government is already backtracking on publicizing the results of the banking stress tests. It seems pointing a finger at "bad banks" may be bad for their business.
  • In other news, the swine flu came to the fore, as both a health and an economic concern. After some discussion on the trading desk, none of us can recall the "cure" to other pandemics such as the avian bird flu, SARS, or even the killer bee invasion, nor a lasting fundamental economic impact. To be sure, for those directly affected the swine flue is tragic news, but I remain uncertain whether economically it compares to other market-related events.
As a bond market watcher, I am by definition the cynical type. But without a vision as to how this economy can recover over the next several years, it's difficult for any of today's "green shoots" to provide great excitement.

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