We have been concerned for months that the pick-up in economic activity is a blip in a weak economy. Low oil prices, low inventories, and a rising stock market brought some euphoria to investors as consumer confidence rose and businesses began to spend more. Earnings reports were better than expected but they weren't from growth but aggressive cost cutting. Stocks took each queue as a sign of the economy improving and baked in an expectation of higher GDP in the second half of 2009.
Yesterday, consumer confidence was announced and it was weaker than the previous month. The markets viewed that as a big concern but it doesn't appear to be a huge surprise. The world is not falling off a cliff and the banking system has not collapsed, yet. Business has stabilized and consumers are feeling better. The economy is in no man's land as business is not contracting but it is not growing either. The future trends for consumer spending is definitely a problem as the loss of net worth, higher oil prices, and rising mortgage rates will lead individuals to save more and replenish their net worth. Decreased consumption means weaker GDP growth in the future.
Today the ADP employment report showed that 473,000 jobs were cut in June when most economists expected 393,000. It doesn't look like a green shoot to us and neither does the consumer confidence numbers. It will be interesting to see today's reports on the June Manufacturing Index and the May Pending Home Sales. Will those green shoots also look like weeds?
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