Well, it didn’t take long for the US politicos to fire up and fix the problem of waiting in line at the US airports.
- The Senate moved quickly late on Thursday to end air traffic controller furloughs that were causing widespread airline flight delays related to last month’s automatic federal spending cuts. Without any debate, the Senate unanimously passed legislation giving the Department of Transportation flexibility to use unspent funds to cover the costs of air traffic controllers and other essential employees at the Federal Aviation Administration.
I guess the motivating factor here is the American flying public getting upset about having to wait in line. Wow! Who knew it was that simple to get the US politicos to do their job. I suspect the market is hoping that the Congress will deal with the rest of the sequester as swiftly, as now the talk about Wall Street town is that US GDP growth next quarter will be less than the 2.5% it came in at today.
- D.R. Horton Inc’s quarterly profit almost tripled as it sold more homes at higher prices, and the No.1 U.S. homebuilder said the spring selling season was off to a strong start.
Economists predicting are one thing, but actual numbers are another. New homes are selling and this year’s home-buying season is off to a strong start. Now, it might be that US politicos will end up doing nothing about the rest of the sequester cuts, and the ensuing loss of government money flowing through the economy will affect US GDP growth, but how big of an impact will the loss from government spending be if other areas of the economy pick up the slack?
- Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at 3.2 percent pace – the fastest since the fourth quarter of 2010. It grew at a 1.8 percent rate in the fourth quarter of last year. Consumers managed to step up their spending despite the return of a 2 percent payroll tax and higher gasoline prices.
So even with the sequester spending cuts in the first quarter, the consumer kept spending and the US GDP managed a 2.5% growth rate. The headwinds for the consumer in the first quarter did not stop spending, so what will?
- However, households cut back on saving to fund their purchases after incomes dropped at a 5.3 percent rate in the first quarter – a bad sign for future spending growth. The drop in income was the largest since the third quarter of 2009.
US workers’ incomes dropped, the sequester is still in effect, the payroll tax is not going away, US manufacturing is waning, US corporate revenues are lighter than they have been for a while, China is slowing economically, and Japan is still stuck in deflationary mode, so why is the market still not capitulating to the bears? Why isn’t it tanking?
Today’s market movement is not strong in either direction, which suggests the question is even more perplexing. What is the market thinking about? What does it see coming that keeps it working toward a higher level?
- The tide is turning in Europe. Austerity, long seen as the most appropriate medicine for the continent’s debt-wracked economies, is fast losing favor, with increasing concessions being offered by Europe’s policymakers to countries over loan repayments and deficit reduction.
Could it be that the market understands Europe will soon stop choking its economies with austerity and begin stimulating them, which will mean a stronger economic Europe?
On the surface, the market behavior in the context of the world economic view seems wrong, as I wrote recently, but, on the other hand, as I also wrote recently, the market looks 6-9 months out, so it must see the last quarter of the year being a strong one. The question is why?
Well, maybe the market is seeing US corporate earnings are in line with historical norms, the US housing industry is still improving, US car sales are still strong in the US, global inflation is in check, food and energy prices are dropping worldwide, US consumer debt is lessening, US commercial real estate is improving, and US small-business lending is up. By the way, the last item is a big one.
- Small business lending demand hit its highest level of 2013 in March, according to the Monthly Small Business Lending Index released by Direct Capital, a leading provider of equipment leasing, business loans and working capital. The index showed that small business lending demand across the United States in March was up 4.5% over February. Year-over-year demand increased as well. The index found that demand in March 2013 was up by 36% over March 2012. That continues a trend of increased demand over 2012 previously observed in both February and January.
In all this seeming confusion, I have but one question. Why would lending be up if small businesses believe the US economic future is dim? I don’t know, but it seems the market just might be smarter than the average bear …
Trade in the day; Invest in your life …
