October 8, 2011
Up until Friday morning, the majority of economists were predicting a double-dip recession. We have been saying that flat August retail sales were an anomaly, that September retail sales will bounce back, and that the economy is moving ahead, albeit slowly. So what happened?
Friday morning, hiring data was released. It showed that non-farm payrolls rose by 103,000 in September, following gains of 57,000 during August, and 127,000 during July. Temporary jobs rose by 19,400 (up 8.4 percent vs. last September), an indication of pent-up hiring demand. Most important, though again not a major move to the positive side, was the increase in average hourly earnings, up by 0.2 percent (up 2.0 percent vs. last September).
Reacting to this slight bit of positive news, all sorts of economic soothsayers changed their tunes, and now they pronounce that we are not going into another recession. Not only do the headlines bounce around, so does the stock market. As the following chart illustrates, early in the week the EU debt crisis was a disaster, pushing the market down. A few days later it wasn’t, and the market recovered. No wonder the average American is so confused.
Source: Yahoo! Finance
Yet the prophets of doom and gloom persist. Another interesting headline Friday morning came from former Federal Reserve Chairman Alan Greenspan. He remarked that the U.S. is facing a “dangerous” threat from Euro debt. While I agree that the Euro debt problem is real, these statements are more of the same headline-grabbing remarks that the newswires love to publish. While Greenspan may be very smart, this is the same guy who said that the housing bubble was contained and would not affect the macro economy. The exact quote, from 2005 reads: “We've had a lot of local bubbles … we don't have a national bubble.” And while we are picking on Fed Chairmen, in October 2005, then-chairman of the president's Council of Economic Advisers, Ben S. Bernanke, in testimony to Congress's Joint Economic Committee stated: "a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year.
The point is: look beyond the headlines. Consider some of the following retail same store sales numbers recently reported for September:
Costco: +12 percent
Dillard’s: +3 percent
Kohl’s: +4.1 percent
Limited Brands: +11 percent
Macy’s: +4.9 percent
Nordstrom: +10.7 percent
Saks: +9.3 percent
Target: +5.3 percent
Of course not every retailer was so fortunate (JC Penney -0.6 percent; Gap -4.0 percent). However, the good news is that the world is not coming to an end. Next week, many Fortune 500 companies will be reporting earnings, and the outlook is positive. So let’s all get back to work and stop complaining!
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