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Investing Specialists

Indicators: A Changing of the Guard

Some early-cycle favorite indicators are stalling out, while others are jumping to life.

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This week's data looked good, with two of my key themes showing some signs of life as exports and the balance of trade data were better than expected. The cheap dollar and lower oil imports are beginning to work their magic. Secondly, consumer and retail data also came in above plan. Better consumer balance sheets and net worth, as reported by the Federal Reserve Bank on Thursday, should give the consumer the wherewithal to spend even more money in the weeks and months ahead.

I continue to believe that greater clarity on bonuses, the lifting of salary freezes, and restarting 401(k) matches can provide further impetus to consumer spending. A broad combination of better consumer spending, more exports, additional stimulus spending, and inventory restocking are the basis for my GDP forecast of 3.5% growth for 2010.

That said, looking at December and January indicators is always trickier than it is during many other months of the year. Shortened work weeks, seasonal hiring and firing, year-end budget flushes, and severe winter weather all wreak havoc with the numbers. While most of the statistics do try to include some seasonality factor, shifting trends by just a week or two can strongly affect monthly data. For example, later-than-usual hiring by retailers this holiday season may have negatively affected the October jobs report.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.