Skip to Content
Investing Specialists

Consumer Powers Ahead, but Businesses Push the Pause Button

Although data show the consumer has not given up the ghost, businesses are still cautious.

The news out of Europe and China continued to dominate the markets this week, but a soft U.S. employment report on Friday began to raise fears that world weakness was spreading to the United States. I believe those fears are a bit overdone as same-store retail sales data, personal consumption data, and auto sales continue to indicate the consumer has not given up the ghost just yet. In fact, if anything, consumer growth seems to be accelerating, perhaps because of falling gasoline prices and a substantially lower inflation rate. But in the months ahead, it looks as though my theory that falling prices (a result of slowing world growth) and the resulting boost to consumption will more than offset any weakness in exports will be sorely tested.

Even as consumers power ahead, I think U.S. businesses have definitely hit the pause button. While firms aren't firing people at a faster rate (initial unemployment claims have been flat for several months) this week's employment report seems to suggest that they certainly are not hiring a lot of new people, either. Durable capital goods orders last week, and continued inventory reductions (as indicated in this month's purchasing managers reports) seem to indicate that China and Europe are giving businesses pause. While the bulk of corporate adjustments will likely occur in overseas operations, headquarters-related head counts appear to be under tight control, too.