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Investing Specialists

Mixed Economic Data, Again

As the effects from Japan fade, earnings misses and budget crises take center stage.

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Both economic and earnings news this week were mixed, while the United States debt limit discussions had a relatively muted effect on the week overall. It still appears the market is giving Congress the benefit of the doubt that they will manage to get something done before the U.S. hits the debt limit next week. I, too, believe that we will muddle through, doing as little as possible as late as possible. If Congress doesn't manage to do something in time, the market will probably collapse for a few days as our elected officials eventually get their act together. Given this mess, it's surprising the S&P 500 didn't lose more than the 4% that it did over the last week and the 6% it has lost since the end of April when the market made its high for the year.

More Negative Earnings Surprises Balanced by Reports of Shortages
While the number of upside surprises and overall earnings growth so far appears consistent with S&P earnings growth of over 12%, there seem to be more high-profile misses this quarter than in previous quarters. This week telecom supplier  Juniper (JNPR) joined the ranks of disappointing results that already includes  Terex (TEX),  Ingersoll Rand (IR), and  Caterpillar (CAT).

A softer European market, a modestly slowing China, poor government spending, and poor results relative to anything related to U.S. construction seemed to be some of the common themes among the disappointments. Oddly, a few firms (Terex and  PACCAR (PCAR)) indicated that parts shortages (unrelated to the Japanese situation) kept sales from being better. One software company reported a shortage of salespeople kept sales from being better. So while there continues to be softness around the edges of the U.S. economy, some of these anecdotal stories aren't consistent with an economy that is collapsing.

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