Worse, where it appeared that the U.S. economy had recovered all of its lost output and was now bigger than ever on an inflation-adjusted basis, the new numbers changed that calculation. We still are not as large, again, on an inflation-adjusted basis, as we were in Q4 2007. On a nominal basis, we now are a $15 trillion economy, but we still have a gain of another 0.4% or so to go before we really reach new ground and all of our collective output is at a new inflation-adjusted high.
Add to that last Monday’s horrific ISM Manufacturing report that showed the expansion slipping dangerously close to contraction, and it’s no wonder that a potential deal to take care of the debt-ceiling crisis, which saw the market surge in early trading last Monday, took the wind from the market’s sails within minutes of its open.
Last Wednesday’s ISM Service Economy report followed on with lower numbers on most counts, which only added to pessimism.
Then, the personal incomes and spending report for June added fuel to the bearish fires, though if you looked through the data a bit, you could conclude that this might be just another summer pause, not unlike the one we saw exactly one year ago. And one year ago, consumer and investor sentiment wasn’t fighting a budget and debt ceiling battle, nor were we being rocked by the possibility of defaults and downgrades here and overseas.
Plus, a silver lining in the report is that rising savings rates might indicate a little more unwillingness to spend now, but it also means households are repairing their balance sheets. When the all-American itch gets too great, though, that money is going to go right back into the malls and the auto dealerships, where, frankly, sales are rising for all of the Big 3 automakers.
I know this all sounds depressing, and worrisome, and it is. But it’s important to remember that economies, like markets, don’t hew to a calendar, Gregorian, lunar or otherwise. So, while the data on the months of June and July might not necessarily indicate that the slowdown in the second quarter suddenly reversed course in the first month of Q3, it’s just a couple of months. I wouldn’t want to put a gloss where it doesn’t belong, but pessimism is often its own reward — at least for investors who don’t know how to accommodate the daily vicissitudes of the market.
