Thursday, January 5, 2012

Service sector steady as she goes

The December ISM service sector survey was lackluster, in that it showed no unexpected strength. But neither did it show any unexpected weakness. On balance, it was consistent with an economy that is growing at a modest-to-moderate pace, and that is something that we already knew. If there is optimism to be found here, it is that to date there is no sign of the much-anticipated double-dip recession that many, most notably the folks at ECRI, have been calling for.

The prices paid survey continues to show that a majority of businesses are paying higher prices. Inflation is alive and well—albeit still relatively muted—and deflation remains a distant memory.

The employment index shows no meaningful improvement in hiring activity, and that is about what you would expect from an economy that is growing at a 3% rate.

The good news from this survey is that there was no bad news. That may not sound very impressive, but I think it is, since I believe that the market continues to be priced for disappointing news. When the market expects deterioration, the simple absence of deterioration becomes bullish.


Pragmatic Investor said...

So no year end predictions/review this time because you got most things wrong last year? Don't have the courage and honesty to admit that you were wrong? Ironically, 6 months ago you couldn't resist to do a mid-year review and now the year is over and you are radio silent. If you have the guts to make predictions, then you need to have the skin to admit it when you are wrong.

Bill said...

I'd be interested in your take on an economist named Harry Dent who believes stocks will drop between 50-70% over the next few months because retiring baby boomers will stop spending. Although this sounds rather drastic, I wonder what your views are on the current and near term effect of demographics on stock prices.

Benjamin Cole said...

Fed to US economy: Drop dead. We are fighting inflation instead.

Scott Grannis said...

Re demographics: there is no way US demographics change fast enough to push stocks down 50% in a short period of time. Also, I am pretty sure that baby boomers won't be retiring as soon as they had expected, given the damage suffered by housing prices and their investment portfolios. Indeed, I think boomers will remain in the labor force for much longer than most demographers have been projecting.

Scott Grannis said...

Pragmatic: a year end review and forecast is overdue. I've been a little short on time the past week or so, but hope to get to it soon.

Benjamin Cole said...

Yeah, most boomers will "retire" with their boots on, save they be federal or public employees (federal uniformed employees can retire after 20 years of service).


Check out something called the "divisia" money supply. The Fed is passively tightening the money supply---extending our recession.

A guy named Woolsey at "Monetary Freedom" has a good post on it.