Waffling economic data

Good morning folks!

Today brings a couple of economic data points worth considering. First, is that the Standard & Poors Case-Shiller home price index fell very slightly in April. This marks the third consecutive month of a very slight decline. Second, Consumer Confidence fell in June to 49.3 from a revised 54.9 in May.

The Case-Shiller number is just not that useful because the data is so stale. What happened in April scarcely has any bearing on what is currently going on. This is because we are at a tipping point in the economic recovery. Things are either about to get better, or they are going to continue along at the bottom. We are in a tenuous transition time right now as the economy has not yet definitively emerged from recession, or gotten worse.

The Consumer Confidence number is troubling, but not surprising. I say ‘troubling’ because of the absolute dominance in Gross Domestic Product that consumer spending represents. Also, the number dipped below 50.0. Though it is not often discussed, a number above 50 represents belief that the economy will be growing, whereas a number below 50 represents belief that the economy will get worse. I also said that this number was not particularly surprising. Why? Because the stock market went sideways for much of June and U.S. consumers (wrongly) assume that as the stock market goes, the economy will go, too. Because so many of us grew up thinking that the Great Depression was “caused” by the stock market crash of 1929, we have come to associate the stock market as an economic weighing machine. Is there a correlation between the economy and the performance of the stock market? Yes. Is that correlation very meaningful? No. Fortunately during the second quarter consumers did spend more money and it is likely that second quarter results from businesses will be better than expected. Hopefully that will induce investors to sink more of their cash into the stock market. That will drive up share prices and consequently stock market levels. That will trigger to the U.S. consumer that things are getting better. Their confidence should rise…and a virtuous circle will hopefully be created.

Why the tentative language on my part? My general reading of the vibe of people is that they are a bit exhausted by the economy and the state of the world. A malaise seems to have descended. President Obama brought to office tremendous optimism that sparked a renewed hope in the public. However, as the honeymoon glow has worn off, folks are starting to get grumpy again. This is potentially very dangerous for the economy in the short-, to medium-term. So I am watching events very closely, especially with regard to my own investments. I will continue to provide updates when it seems appropriate. My hunch right now is that the dearth of news has led to a lot of investors hunkering down for the second quarter news onslaught. I am confident that the results will be positive and that they will drive the market upwards and the circle I described above will ensue.

For the benefit of your own news monitoring abilities, pay close attention to whether or not positive news leads to stock market rises. If it does not then we are in trouble because it means that consumer confidence in an economic recovery has been shattered and this whole thing could get bleak real fast.

Let’s be careful out there!

Jason