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MAKING CENTS OUT OF THE NEWS
Blog #42
(November 5th, 2009)
OUR PAINT-BY-THE-NUMBERS ECONOMY
By Tom McAllister, CFP®
Your doctor’s just declared you’re on the mend, predicting you’ll feel better by next week. Presto! You feel better right now. But, if Doc confirms you’re coming down with a respiratory ailment, saying your symptoms will get worse before they get better – Wham! You feel worse the moment the words are out of his mouth.
A similar psychological effect occurs every time the media discusses the state of our economy. It seems the numbers reported on the news are not only about the state of the economy – they cause the state of the economy! In this time of “paint-by-the-numbers reporting”, only the small minority of which I’m a part prefers to paint the future in bright, cheerful colors, in stark contrast to the grays and dark hues into which most of the financial press appears to have dipped its brush.
In last week’s blog post, I reported that the U.S. economy, during the third quarter of this year, grew at a 3 ½% annualized rate. (Originally, the newsletter version of my blog reported the number 3%; it was corrected to 3 ½% on the website.) Close to half that growth appears to have been the result of the Cash For Clunkers program. Since that stimulus plan will not be continued this quarter, most economists predict a 2% annualized growth for 4th quarter 2009.
I, along with some like-minded observers, paint the near future in a somewhat rosier hue, perhaps 3% annualized growth for the coming quarter. This is based in part on an Institute For Supply Management report about manufacturing activity shooting up to 55.7 in October, the third straight reading above 50 since 2006. Here, too, stimulus dollars have had an effect, allowing businesses to fund inventory replenishment. A bit of a slip in manufacturing would actually be consistent with post-recession patterns from the past.
Another bright spot in last week’s government report involved construction spending, which rose a greater-than-expected .8% in September, fueled by the strongest jump in home construction in six years. The National Association of Realtors reported a 6.1% rise in the volume of signed contracts to buy previously occupied homes, to a level 21% above that of a year ago. Buyers were scrambling to qualify for the tax credit, which has now been extended into next year.
There are other bright spots. The weakening U.S. dollar and strength in Asia will combine to boost our exports, as European and Chinese goods become relatively more expensive.
The recession is indeed over. Recovery has begun, and will continue, albeit at a slow pace. The media will continue to harp on negative news; Congress and the administration, in their efforts to make things better faster, will continue making some things worse. The stock market will slow the pace of its upward rebound, but averages, I predict, will be significantly higher by this time next year.
As for me, I will continue my own blog stimulus plan, educating and informing my readers, painting, by the numbers, a realistic and optimistic picture of the economy.
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