Short-Term Blips or the Beginning of the End?
A strong bounce off the bottom, a pause, and a reacceleration are more typical than one might expect.
No doubt about it, I have seen a month or two of broad economic data where the positive rate of change in some indicators has slowed and others have even gone negative. Retail sales, housing data, and even employment data have weakened. A weak stock market combined with nasty headlines out of Europe certainly haven't helped, either.
It strikes me as a little odd that after almost a year of consistently improving data, just one month of poor data is causing everyone to give up on the recovery. Economies seldom move in a straight line without pauses and wiggles. Both of the last two recoveries saw growth slow down to the 1%-2% range after a year of recovery before reaccelerating to the 4% range in the subsequent year.
A strong bounce off the bottom, a pause, and a reacceleration are more typical than one might expect. A strong manufacturing sector that has not even regained half of what was lost in the recovery and consumer incomes that are finally beginning to show some meaningful improvement, as well as inventories that are still way too low, are the primary reasons for my optimism.
Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.