Economic analysts are giddy about a recent spate of positive consumer-based indicators, on not only housing starts but consumer confidence, retail sales, auto sales and even unemployment. At the same time, in the same economy, the numbers run completely the other way when it comes to the corporate sector. Joe Weisenthal runs down the numbers. Some of them are sentiment-based, which I view with similar skepticism around a national election as I do with things like consumer confidence. But there are hard numbers around capital expenditures, and export growth, and corporate hiring plans, and even corporate profits, that have all turned negative.
So what’s going on? The export story can be tied to a global slowdown, with a recession in Europe, and stumbling growth in emerging markets. In this sense, the downside risks to the economy, from both Europe and China, are already being realized. But the dichotomy between happy consumers and grumbling businessman needs to be examined further. What’s going on here?
I think at least part of it could be attributed to the election: a lot of the consumer confidence spike was found to have come from Democrats, and I imagine the business doom and gloom could conceivably come from Republicans. But this doesn’t match the most recent trend in the election, where Mitt Romney has clawed back into the race.
There could also be more of a recognition among businesses than lower-information consumers about the pitfalls of the fiscal slope, although that isn’t seen on Wall Street, which basically doesn’t care about that risk. Certainly at least some businesses are hung up on the notion of uncertainty, though businesses consistently list weak sales as the reason for their lack of investment.
Finally, there’s the possibility of a housing wealth effect, though it seems far too early in the recovery cycle for that to have too much of an impact.
It will take until year’s end to see what fiscal policy will look like, as well as the makeup of the next government. So that should clear the air, and we’ll have a more consistent direction between consumers and businesses. But it looks like a toss-up right now.