Okay, now the market is clearly perturbed. The breathless media has done what it does best – whipped up fear. Now the market is responding in kind. True, the news out there is not stellar, especially about Europe, but the pounding on the soft economic data almost takes my breath away. One would think the economy is grinding to a halt. So, let’s take a closer look, paying attention to one very important leading indicator, as well as an important lagging indicator.
In case all the turmoil in Europe has distracted you, here’s an important reminder as we wind down the month: Crude oil was at $105 a barrel at the start of May. Today it’s trading below $90, more than $15 – or 14% — lower.
To be precise, oil is trading around the $86 level today, and, other than Iran, I see nothing out there that will push oil higher in the near term. In fact, oil is likely to go lower, as demand from China, India, Europe, and the US lessens. One could argue the pounding of the soft economic data is contributing to the downward pressure, so maybe I shouldn’t be so hard on the breathless media, as lower oil prices are the best catalyst for the global economy. You see, if we look, we can always find a bit o’ good in the bad.
Speaking of good, the lagging indicator I mentioned earlier puts the recent soft economic data into perspective, and it suggests the economy could improve starting this week, the traditional beginning of the summer season, the time when families spend time and money together.
Several top retailers reported stronger-than-expected sales in May, as shoppers overcame growing anxiety about the U.S. economy and the job market.
Now if Iran does not explode on the world stage in June and the July oil embargo does not happen, gasoline prices should continue to fall, thus adding to the retailers’ momentum this summer. As well, the consumer spending that is not making the headlines will also push hard on the manufacturing cycle of the US economy.
While the small inventory build-up held back growth in the January-March quarter, restocking of shelves, retreating gasoline prices and an improving housing market should provide a boost to output in the second quarter.
Hey, more good economic news, news that one should see as a leading indicator. Companies will begin restocking, that will push manufacturing, which could push hiring, which should push more spending, and so on. That is the first part of the news above. The second part is that the housing market seems to want to stop bouncing around on the bottom and begin an ascent out of its hole. Remember, back in January, the prediction was that 2012 would be the “Year of the Great Foreclosures.” We were told the sheer amount of coming foreclosures would set the housing industry back. That has not happened. In fact, the opposite has happened – foreclosures are decreasing, and that makes the next bit of news even more compelling.
Average US rate on 30-year mortgage falls to record 3.75 percent; 15-year at 2.97 percent.
Falling gasoline prices, more consumer spending, the manufacturing cycle turning up, and record low mortgage rates in the summer, the peak buying season for the housing market all speak to the possibility of an economy moving past its soft patch and toward something a more robust.
Trade in the day – Invest in your life …
