Facts Just Do Not Support a Slowing Economy

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If you listen to the daily news, or the CNBC talking heads, you hear a lot of economists expressing their growing fears of a slowing U.S. economy, due to high unemployment and slow retail sales. But the facts say otherwise.

On Tuesday, the Conference Board announced that consumer confidence surged to 70.4 in February, versus a revised 64.8 in January and a modest economists’ consensus expectation of just 66.

Then, on Wednesday, the National Association of Realtors reported that the sales of existing homes rose 2.7% in January, the fifth rise in the past six months. Distressed home sales accounted for 37% of all sales in January, pushing median home prices down 3.7% to $158,000, the lowest median price since 2002. Since real estate represents approximately 40% of the Consumer Price Index (CPI) via “Owner’s Equivalent Rent,” the CPI will likely remain low, allowing the Fed to keep short-term rates near zero.

On Thursday, the Commerce Department announced that orders for durable goods rose 2.7% in January, the first increase in four months, due largely to a 27.6% surge in transportation orders, mostly aircraft demand. Excluding transportation, orders fell 3.6%, the biggest drop in three years, so the headline looks great but the details are messy. However, since inventories have been severely depleted, I expect to see durable goods orders perk up in the upcoming months as businesses must replenish their inventories.

On Friday, the Commerce Department revised its fourth quarter GDP to 2.8%, down from the initial flash estimate of 3.2%. On the bright side, the primary component causing this downward GDP revision was a 2.4% decline government spending at the state and local level (versus an initial estimate of a 0.9% decline), a positive trend. Also, consumer spending was revised down to 4.1% from 4.4%, but that figure was still the fastest consumer spending growth since 2006. This is very promising for greater economic growth. In addition, business spending was revised up to 5.3%, versus the initial estimate of 4.4%. Another positive is that a lower GDP figure should give the Fed ammunition to justify its accommodative monetary policies.

The other good news released last week was that new unemployment claims fell by 22,000 to 391,000 in the latest week, and the four-week average of new claims fell 16,500 to 402,000. Economists tell us that new job creation picks up immensely when new claims fall below the 400,000 level, so Wall Street will be closely scrutinizing this Wednesday’s February ADP report and Friday’s monthly payroll report.

If Friday’s report is disappointing, the stock market could retest its recent lows. But I expect a very favorable February payroll report, due to falling claims for unemployment and especially due to the fact that the payroll processor, ADP, is finding more jobs than the Labor Department, so I expect a very positive February payroll report with December and January possibly being revised higher in the process.


Article printed from InvestorPlace Media, https://investorplace.com/2011/02/consumer-confidence-existing-home-sales-do-not-support-economic-slowdown/.

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