Econ­omy continues to im­prove

Daily Local News (West Chester, PA) - - BUSINESS - Joel Naroff Colum­nist

IN­DI­CA­TOR: » Re­vised Third Quar­ter GDP, November Con­sumer Con­fi­dence and Septem­ber Home Prices KEY DATA: » GDP: +3.2 per­cent (from 2.9 per­cent); Con­sump­tion: 2.8 per­cent (from 2.1 per­cent)/ Con­fi­dence: up 6.3 points/ Home Prices (Over Year): +5.5 per­cent. IN A NUT­SHELL: » “The econ­omy is start­ing to hit on al­most all cylin­ders.” WHAT IT MEANS: » Guess what? The econ­omy isn’t ter­ri­ble, at least if you be­lieve the gov­ern­ment’s data. Now I know some peo­ple pick and choose what they like or don’t like about the data, but economists are stuck ac­tu­ally hav­ing to look at all the num­bers and right now they look pretty good. The econ­omy ex­panded even faster in the sum­mer than ini­tially thought, though not quite as fast as my fore­cast. One more re­vi­sion and we should be at the 3.4 per­cent that I had. The key to the up­ward re­vi­sion was much bet­ter con­sumer spending than first es­ti­mated. Off­set­ting that was a smaller in­ven­tory build and less cap­i­tal spending. That ac­tu­ally is good since the lower lev­els cre­ate a bet­ter chance the fi­nal quar­ter will also be above 3 per­cent. We also got the first read­ing on third quar­ter cor­po­rate prof­its and they soared. Firms have the funds to spend but they are not do­ing that. That could change soon.

Can con­sumers keep spending as they have been? Signs point to that hap­pen­ing. First, it looks like the Black Fri­day week­end and Cy­ber Mon­day were re­ally strong. I know I tapped out the

past few days. But more im­por­tantly, con­sumers

seem more op­ti­mistic. The Con­fer­ence Board’s Con­sumer Con­fi­dence In­dex re­bounded in November af­ter fall­ing in Oc­to­ber. Re­spon­dents had a bet­ter at­ti­tude to­ward both cur­rent

and present eco­nomic con­di­tions and thought that jobs would be more avail­able. Rising con­fi­dence holds out hope the hol­i­day shop­ping sea­son will be strong.

On the hous­ing front, prices con­tinue to rise. The S&P CoreLogic CaseShiller Na­tional Home Price In­dex in­creased solidly in Septem­ber, hit­ting its high­est level ever. Yes, it broke through the peak set in July 2006. Ev­ery one of the 20 large metro ar­eas posted a gain over the month, show­ing the in­creases are wide­spread. MAR­KETS AND FED POL­ICY IM­PLI­CA­TIONS: >> The

wheels are start­ing to come off the bad econ­omy. Did I say that wrong? Not re­ally. It seems that everyone is stuck in 2009 when it comes to de­scrib­ing the econ­omy. Con­sumers are not spending – wrong. The hous­ing mar­ket is bad – wrong. Cor­po­rate prof­its are ter­ri­ble – wrong. Businesses are hun­ker­ing down and not spending – right!

So, what do CEOs know that everyone else doesn’t? You tell me and we both know. There is only so much con­sumers can do on their own and ex­porters have prob­a­bly maxed out given the un­cer­tain world econ­omy and strong dol­lar, so it is ei­ther up to businesses or the gov­ern­ment. With Repub­li­cans hav­ing con­verted mag­i­cally from no more spending to for­get the deficit, Keynes is my hero, cor­po­ra­tions are the only group

left hold­ing things back.

Why haven’t com­pa­nies stepped up? In a 2 per­cent eco­nomic growth world, which we are in, stock prices can do bet­ter if prof­its are plowed into buy backs and merg­ers rather than in­vest­ing in plant and equip­ment. And just think, if those hun­dreds of bil­lions of dol­lars held over­seas are repa­tri­ated, boy will the M&A busi­ness go crazy, even if that adds lit­tle to po­ten­tial GDP. If com­pa­nies take some of their prof­its and ac­tu­ally start adding to cap­i­tal, growth could re­ally ac­cel­er­ate.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.