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Investing Specialists

Economy Could Use a Little Luck

To get GDP growth much in excess of 2% now will require a few breaks in weather, inflation, and Europe.

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World markets seemed to believe that the U.S. economy was accelerating sharply, and the rocket ship was approaching escape velocity. Bonds and high-yield stocks got shellacked early in the week, believing that Fed tightening and tapered bond purchases were just around the corner. (The stocks managed to do a little better than bonds but were still off as Germany and the rest of Europe decided to back off a little bit from their misguided austerity kick.)

The "evidence" that sent bond markets into a tailspin was just a little flimsy. The basis? Nearly useless consumer confidence reports and month-old real estate price data. The sentiment around these reports was at least partially reversed later in the week when the GDP revision for the first quarter had the wrong sign and the consumer income and expenditures report showed a sizable gap between income and spending. Spending itself remained stuck in the same 2% annual growth trajectory it has been on for more than two years. Meanwhile, income growth remains considerably below that level, which suggests that even if the consumer is optimistic, the fuel necessary for more spending is running a little low. The top income quartile (who are big savers) really needs to step it up spending-wise, and weather and gas prices need to cooperate to keep the U.S. economy from settling back a little in the second quarter and in the second half of 2013.

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