Fisher Investments Editorial Staff
US Economy, Others

A Preponderance of the Evidence: Growth

By, 10/21/2011

In recent weeks, we’ve touched on a number of metrics and releases we believe highlight underappreciated economic strength globally and the likelihood for continued growth ahead. Here’s a rundown of some, although not all, data supporting our view a recession isn’t likely in the here-and-now or immediately ahead:

  • Philadelphia Economic Index Unexpectedly Rises: “The Federal Reserve Bank of Philadelphia’s general economic index increased to 8.7 from minus 17.5 last month, the biggest one-month rebound in 31 years.”
  • Industrial Production in US Increases on Cars, Computers: Industrial production figures jumped 0.2% in September (3.2% year over year), with considerable strength in manufacturing.
  • Eurozone Industrial Production Climbs: August IP figures rose 1.2% from July and 5.3% from a year earlier.
  • Retail Sales Rose Strongly in September on Autos: Contrary to slumping consumer confidence indicators, US consumers stepped up their spending on retail goods in September—putting them at a new all-time high. Sales rose 1.1% from a month earlier—the largest gain in seven months.  
  • Banks have begun making more loans. Though it’s early, signs of improvement in loan demand and willingness to lend are showing themselves.
  • Services Sector Inches Ahead, Report Says: “On its own, September’s service sector expansion wouldn’t mean much. But combine it with September US auto sales rising nearly 10%, private employers adding jobs (per ADP), rising construction spending and capital goods orders, and it’s tough to find evidence supporting the idea of a looming recession.”
  • US Factory Growth Accelerates: The Institute for Supply Management’s (ISM) index of national factory activity surprised analysts by rising to 51.6 in September—an acceleration from August’s 50.6 reading.
  • ISM’s Chicago Business Barometer rose to 60.4 in September from August’s 56.5 (50 is the dividing line between expanding and contracting activity).
  • The ratio of retail inventories to retail sales is at its lowest level ever and continues to creep lower. Meaning, at some point, retailers will have to commence inventory restocking and manufacturers will have to start producing more—a source of ongoing demand.
  • China’s Q3 2011 GDP came in at +9.1%—slower than the prior quarter (which is largely intentional), but fast growth nonetheless.
  • August Japanese machine orders jumped +11% from July, easily topping expectations of +3.9% growth. Foreign orders led overall growth, rising +32% m/m.
  • UK exports rose +0.6% m/m in August. The £25.5 billion exported was the highest total since records began in 1998.
  • Housing Starts Increased in September: Privately owned housing starts jumped 15% from August to September. Housing may take some time yet to recover fully, and a robust housing recovery isn’t necessary for broader economic health, but some green shoots here are encouraging.

It is certainly correct to say there are negatives in the world. There always are! Unemployment is high in the US and elsewhere (though that’s a lagging economic indicator). Housing isn’t super strong. Greece. And there are others, to be sure. But in our view, the preponderance of positive factors (like those listed above, for a start) outweighs the negatives. What’s more, the negatives are very well known and talked over, whereas positives remain underappreciated. With sentiment seemingly more uniformly dour and detached from reality now, that should be an additional positive factor for equities through yearend and into 2012.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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