Fisher Investments Editorial Staff
US Economy

It’s Not Always Sunny in Philadelphia

By, 08/20/2010


Story Highlights

  •  Thursday's less-than-stellar US stock market performance was largely attributed to disappointing US economic indicators—furthering double-dip fears.
  •  But it's encouraging folks are worrying over pretty run-of-the-mill economic indicators instead of a more meaningful (but now less likely) euro debt crisis.
  • At most, this is a bit of a soft patch for the US. As always, it's important to remember the positive news emerging globally.


Thursday's S&P 500 stock market performance (-1.7%) wasn't stellar. Worried US headlines attributed the drop to a surprisingly weak Philadelphia Fed survey, more bad jobs data, and disappointing leading indicators—all furthering double-dip fears.

The Philly Fed's August survey of regional manufacturers surprised investors with a reading of -7.7. It was the first negative reading in a year, down from +5.1 in July and significantly off the expected +7.0. Though the survey covers only the Third Federal Reserve District (Pennsylvania, New Jersey, and Delaware), it is a heavily industrial region and does a decent job foretelling monthly manufacturing activity. Also, the number of weekly jobless claims rose to 500,000, a nine-month high. And the Conference Board's Leading Economic Indicators (LEI) index grew slightly less than expected, as June's drop (quite normal after the initial bounce off the bottom) was revised slightly lower.

Tough news day. And yet, it would be simply unprecedented for every economic indicator to be solidly rosy month after month during a bull market. Further, note what wasn't in headlines today. Not too long ago, PIIGS worries hogged headlines (pun intended). A debt-induced implosion of the eurozone would have been a pretty fundamental blow to the global economy. A low probability event, to be sure, but those fears appear solidly in the past. Now it's hard to find a single headline on the matter—euro worries have largely been replaced by double-dip fears (despite little evidence of an actual double dip yet). In one sense, it's encouraging folks today are worrying over pretty run-of-the-mill economic indicators for this stage in the recovery. Fears like these build the wall of worry bull markets love to climb.

As always, it's important to remember the US is not the world, and amid a few disappointing US releases, there is strength abroad. Germany's central bank significantly raised its 2010 economic forecast after Q2 GDP blew through expectations. In the UK, retail sales outstripped expectations. Total sales rose 1.1% in July—the most in five months and quadruple expectations of 0.3%—and a better-than-expected 1.3% annually. Core sales (excluding auto fuel) were up 0.9% in July and 2.4% over last year (much better than the expected 1.8%). Surprisingly strong economic performance could weaken the argument for austerity (promised but not yet enacted) down the road. Besieged Spain dialed back austerity a touch by increasing infrastructure spending—nothing major, but another indication austerity measures may be less detrimental than feared.

And though it may not be sunny in Philadelphia at the moment, not all is gloomy back home. Earlier this week the New York Fed's Empire State manufacturing survey rose to 7.1 as July industrial production moved ahead by a better-than-expected 1.0%. And it's good news firms with cash to spare are spending more on mergers and acquisitions, most recently illustrated by the $7.7 billion Intel-McAfee deal.

There's no denying the economy has backed off its faster Q1 pace. But that's just the way of recoveries—faster or slower, all that matters is the trend generally continues higher. Signs still point to growth. And that's especially true for the world as a whole.

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

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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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