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Investing Specialists

An Early Spring for Consumer Confidence

Consumers appear to be acting on their more upbeat sentiments, and trading up as well.

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Market activity this week was dominated by political news out of Libya and fears of rising oil prices sinking our economic recovery. A combination of increased oil supply from other major oil exporters and the potential tapping of strategic petroleum reserves seemed to assuage market concerns on Friday. However, that confidence would be tested if political unrest were to spread to other parts of the Middle East--Saudi Arabia in particular.

The economic data this week were mixed. Consumer sentiment, corporate results, and reported economic data seemed to be somewhat in conflict. On the downside, GDP for the fourth quarter was revised down, not up as I had forecast, due to inflation-adjusted inventories and a sharper-than-expected drop in government spending. While definitely disappointing overall, the consumer spending portion of the report continued to show growth in excess of 4%, well ahead of the 2% level that typified most of the rest of the year.

Separately, durable goods orders looked great with 2.7% monthly growth; however, almost all of that growth was aircraft-related sales. Excluding those aircraft orders, overall orders fell, and so did capital goods orders. Seasonality factors and a strong year-end push both may have had a tendency to boost numbers for December and earlier, and depressed the January results. Again, I'd be watching the consumer--not manufacturing data--at this point in the recovery.

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