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Fisher Investments MarketMinder:

Fool’s Errand

Focusing on today’s negative data to gauge economic progress is a fool’s errand.

Topic:

Media Hype/Myths US Economy

4/2/2009 By Fisher Investments Editorial Staff

Story Highlights:

The latest jobs and auto reports weren’t stellar. And we’ll likely see more dour news ahead with quarter-end data.
We expect the US recession to continue for some time longer. Correspondingly, bad news will continue to overwhelmingly tip the balance. However, not all economic news is dour.
Though it may at times seem as though the economy will only get worse, history shows recessions do end. If history is a guide, markets will price in the recovery before signs are widely apparent.

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April 1st is associated with fools and foolery. This year, folks are hardly in a joking mood. The US recession is grinding into its second year and visibly taking a toll on the economy—Wednesday’s payroll report showed higher-than-expected job losses in March, and reports from automakers showed March US auto sales tumbled sharply. April 1st also marks the turning point between two quarters, meaning a slew of quarter-end data is to come. If the employment and auto reports are any indication, we’re certainly set to see more dour news ahead.

We expect the US recession to continue for some time longer, but declarations this is Great Depression 2.0 are overwrought. There are extensive, unprecedented global fiscal and monetary stimulus plans (many already underway) and widespread free trade advocacy—all fatally absent in the 1930s. Barring any disastrous event, Fed Chairman Ben Bernanke’s “green shoots” of recovery could well blossom. Bad news overwhelmingly tips the balance today, but it’s worthwhile to take a look at what’s not so dour as well. Here’s some good news from just the last few days that aren’t necessarily making major headlines:

Companies sold $3.21 billion of convertible bonds in 2009 Q1—a nice uptick since the market froze last September.
The volume of global investment-grade debt issuance in 2009 Q1 was more than double the amount in 2008 Q1, though government-backed issuance accounted for a third.
New orders index jumped to its highest levels in seven months, and manufacturing readings beat estimates.
February’s existing home sales rose the most in nearly six years. Sales of new homes also rose.
US consumer spending rose again in February, following January’s gain.
Real disposable income dipped slightly in February, but is still up 2.2% year-over-year.

None of these signal economic recovery by themselves. However, they do show not all data point to an irrevocably worsening economic environment. Though it may seem at times the economy will only get worse, history shows recessions do end. It won’t happen suddenly, with fanfare—and we’ll likely only know for certain long after the fact (and the “official” dating will likely come even some time after that). Rather, the recovery will likely be a gradual process. Even the extraordinary amount of stimulus will take time to work through economies, and even more time to show up in official data.

If history is a guide, markets will price in the recovery before signs are widely apparent, and rise even when news seems unrelentingly dour. So focusing only on today’s negative data could mean missing the recovery—in both markets and the economy. And that would be foolish indeed.

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

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