The Economy Isn't the Roller Coaster It Seems to Be
The world is a little more stable and flexible than the short-term economic numbers, and the short-sighted media, might have you believe.
This week, financial markets paid little attention to positive economic news and treaded water while awaiting announcements from the U.S Federal Reserve and the European Central Bank. Given some very strong statements by the ECB the prior week, markets were expecting concrete action from it on Thursday. When the ECB merely rehashed old bromides, markets fell apart. But a far better-than-expected jobs report on Friday, as well as a favorable report from the ISM on the non-manufacturing sector, set markets on fire Friday.
Participants could no longer ignore the fact that the economy was clearly not falling apart. With central banks distracting investors, many failed to notice that not only did the economic data not get worse, but also July data showed improvement from June. Home prices were up, auto sales came in as expected, construction spending was up, personal income continued to inch up, and initial unemployment claims continued their downward trend on a three-month, moving-average basis. Same-store sales reports on Thursday truly took markets by surprise. The monthly ICSC data showed same-store sales growth of 4.6% in July, the best showing since March. Then on Friday, a stronger-than-expected employment number forced all the nattering nabobs of negativism to reconsider their "we're in a recession now" mantra, a least for a day.
Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.