Recovery's Path Unexpected, But Still on Track
The pattern of improvement has played out a little differently than expected.
This week's data was highly supportive of my thesis of a stronger economy. Although the pattern of improvement has played out a little differently than I had expected, we still seem to be on track to economic growth.
In a typical recovery, the consumer begins to feel more confident and spends more money--which in turn drives more production, more employment, and more income that in turn drives more production. A pattern similar to this played out in the first quarter with consumer spending up nicely before retreating again in the second quarter.
What was different this time? As demand improved early in the year, businesses chose to deplete current stocks of goods rather than cranking up new production that would have required the shipment of more raw materials and the hiring of new workers. And what little corporations were producing was done in an extremely efficient manner, further reducing the demand for labor. I believe those inventories are now unsustainably low and will need to be restocked.
Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.