Bears Running Out of Ammunition
Forget the noise, all signs point to 3.5%-4% GDP growth in the second half of 2009.
The week started out on a high note, with retail sales up 0.5%, excluding autos. Including autos, retail sales declined just 1.5%, versus an expectation of a 2% to 3% decline. Meanwhile, consumer prices continued in Goldilocks mode, not too hot and not too cold, with prices up just 2.4% on an annualized basis. The regional manufacturing reports were mixed, with New York showing exceptional strength while Pennsylvania was down. On the other hand, industrial production, one of the gold standard coincident indicators, showed surprising strength even after earlier months were revised upward. This marks the third month in a row of strong performance from this key metric. Inventories continued their downward trajectory last month, and they continue to decline at a healthy clip. That means the net positive effect of inventories will be more modest than I had anticipated during the September quarter, but more generous (and a nice tailwind) during the fourth quarter.
The week ended on a sour note, as the University of Michigan Consumer Sentiment Survey fell backwards for the mid-September period on the heels of a strong showing in August. This number doesn't sound any alarm bells with me. It's highly volatile, and not particularly predictive. Nevertheless, the market zeroed in on the sentiment numbers like a laser beam, skidding sharply after their release on Friday. So much for my earlier theory that corporate earnings season might finally distract the markets' gaze from the economic indicators.
Corporate News Better, But Not Perfect.
Speaking of corporate earnings, most of the reports, including Intel (INTC), IBM (IBM), and J.P. Morgan (JPM), and CSX (CSX), provided positive earnings surprises. However, the news and commentary from the C-suite was more muted. Consistent with the prior quarter, the upside surprises stemmed more from cost cutting and special credits rather than from eye-popping top-line growth. Intel and some of the other tech stocks did report stronger revenues, as computer manufacturers build inventory ahead of the introduction of the new Microsoft M (SFT) operating system due on Oct. 22nd. However IBM is still worried about big data center computers and storage devices. Improved sales from its high margin software group and developing market sales helped to boost IBM's numbers beyond its earnings target.
Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.