Green Shoots Have No RootsOctober 22, 2012 Posted by: Joe Morgan, CFA
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
Just as some lyrics make absolutely no sense, so do some economicdata points. One could characterize last week's data flow as'barbelled' with some very positive-sounding news and some verynegative-sounding news. At the end of the day, however, nofundamentals have been affected, leaving the astute follower with adifficult time turning positive.
The Federal Reserves Open Market Committee met and determinedit couldn't cut interest rates any further, and nor is it time tobegin taking away the punch bowl quite yet. It does seem, however,that the committee views the economy as less negative, havingstated the "economic outlook has improved modestly." Lessnegativity now equals a positive, I suppose.The first quarter's Gross Domestic Product numbers werereleased, disappointing solidly. Growth put in a showing of minus6.1 percent, versus expectations of only a 4.7 percent drop. Putinto dollar figures, economic activity slowed by $181.2 billion inthe first quarter, led by non-residential fixed investment and adrop in inventories. The "glass-half-full" crowd crows wheninventories drop because that means they'll have to be rebuilt inthe future. Or do they?Consumers were apparently giddy, as shown by spikes in both theConference Board's consumer confidence index and the University ofMichigan's survey of consumers. Historically, consumer confidencemeasures are a good lagging indicator of where the stock market hasbeen. Put another way, respondents answer these surveys based onhow they feel, not necessarily based on how they will behave.Having said that, personal consumption rose at a hopeful 2.2percent rate in the first quarter. However March's PersonalConsumption Expenditures data was disappointing. In addition,personal income in March declined 0.2 percent after a 0.3 percentdecline in February. It seems the hope of a sustained increase inconsumer spending is fading.The stock market stole many headlines, with the...Read More