Mish's Global Economic Trend Analysis

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Economic Optimism Plummets Across Demographic Groups Posted: 12 Apr 2011 02:33 PM PDT Gallup reports U.S. Economic Optimism Plummets in March Americans' optimism about the future direction of the U.S. economy plunged in March for the second month in a row, as the percentage of Americans saying the economy is "getting better" fell to 33% -- down from 41% in January. It is also down three points from the 36% of March 2010. Overall Percentage Saying "Economy Is Getting Better" Those Saying "Economy Is Getting Better" by Income Group Those Saying "Economy Is Getting Better" by Age Gallup results show that men are more optimistic than women and have been for 3 straight years. Difference is 0-5 points, currently 35 to 31. Many in the age group 18-29 are in school, believing a job will await them on graduation. After graduation the realities of monstrous student debt and poor prospects of jobs will dampen that optimism. Economic Ramifications Economically speaking, while those in the 18-29 group are most optimistic, that is the age group least able to afford to buy things. In contrast, those 50-55 are in their peak earning years. Those 65 and older have seen their cost of living rise and their income reduced. The stock market has not been kind over the course of a decade and many realize the next decade may be no better. Look for spending in this age demographic to be health-care and food-related as opposed to spending on cars, boats, and gadgets. Those 85 and up will be seeking to downsize their homes, but who are they going to downsize to? Thus, many in the 65+ age group have a legitimate worry they will "run out of money". Those 50 and up are starting to realize they have not saved enough for retirement and that will increasingly weigh on their minds. Those who are pessimistic will attempt to save more and spend less of their earnings. Moreover, given the home equity extraction model is permanently closed, even spendthrifts will find the amount of money they can borrow is not what it used to be. We have seen a bounce back in spending but how much more is there if consumers have become more pessimistic? What pent-up demand for housing was wiped out by tax credits and pent-up demand for autos may soon hit a brick wall as well. Expect to Hear the "R" Word Expect to hear a few economists mention the word "recession". However, even if the "R" word remains out of the picture, here is the question investors must ask: Is anemic growth or strong growth priced into the stock market? On a global macro basis I see little reason to be optimistic, yet we have record high optimism about the stock market. Something has to give, and it will. For further discussion of the economic slowdown and revised forecasts please see Exports, Imports, "Everything Weaker Across the Board"; Morgan Stanley Drops GDP Estimate to 1.5%; Expect to Hear the "R" Word Soon Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Exports, Imports, "Everything Weaker Across the Board"; Morgan Stanley Drops GDP Estimate to 1.5%; Expect to Hear the "R" Word Soon Posted: 12 Apr 2011 11:37 AM PDT In case you missed it, economists have slowly ratcheted down GDP estimates for the first quarter. Morgan Stanley's 1st quarter GDP estimate is 1.5% down from 1.9%. Barclays also lowered GDP estimates by a half-point to a range of 1.5% to 2%. 4% GDP estimates went out the window long ago. Please consider U.S. Trade Deficit Narrows Less Than Forecast on Soaring Commodity Prices The U.S. trade deficit narrowed less than forecast in February, indicating soaring commodity prices hurt the world's largest economy at the start of the year. The gap shrank 2.6 percent to $45.8 billion from a larger- than-previously-estimated $47 billion in January, according to figures from the Commerce Department today in Washington. Another report showed the cost of imported goods jumped in March by the most in almost two years. "Everything was weaker across the board," Ted Wieseman, an economist at Morgan Stanley in New York, said, referring to the trade data. "Import prices are reflecting surging energy prices," he said, they "are going through the roof and that has been weighing on consumer spending." The median forecast of 71 economists surveyed by Bloomberg News projected the trade gap would shrink to $44 billion. Estimates ranged from deficits of $41 billion to $50.5 billion. The Commerce Department had previously estimated the January shortfall at $46.3 billion. Morgan Stanley lowered its tracking estimate for gross domestic product in the first three months of the year to a 1.5 percent annual pace from a 1.9 percent forecast prior to the data. Barclays Capital in New York lowered it to a range of 1.5 percent to 2 percent, down a half point. GDP climbed at a 3.1 percent pace in the last three months of 2010. After eliminating the influence of prices, which renders the figures used to calculate GDP, the trade deficit narrowed to $49.5 billion from $50.3 billion. The figures exceeded the fourth-quarter average of $45.3 billion. Exports decreased 1.4 percent to $165.1 billion after climbing 2.6 percent in January to a record $167.5 billion. Decreased demand for autos and parts and for capital goods like semiconductors and engines contributed to the drop. Imports fell 1.7 percent to $210.9 billion after climbing 5.4 percent in January, the biggest gain since 1993. Decreasing demand for autos and petroleum products led the decline. The world economy will expand 4.4 percent this year and 4.5 percent in 2012, the Washington-based International Monetary Fund said yesterday in its World Economic Outlook report. Developing nations will grow 6.5 percent this year and next while advanced economies will expand 2.4 percent in 2011 and 2.6 percent in 2012, the IMF said. Expect to Hear the "R" Word Soon I will "take the under" on that 4.4% global growth estimate by the IMF. The ECB is hiking and that will not do Europe much good. Japan is obviously hurting. In the US, state budgets are a wreck and little or no help is coming from Congress. In the US, mall vacancies are high and rising Residential housing in the US remains an absolute disaster China is hiking to stave off property bubbles and inflation The Australian housing bubble has popped. The UK is a fiscal disaster. The overall global economy is much weaker than most think and the global macro picture is awful. Bear in mind the stall rate in the US is 2%. Beneath that, the odds of recession pick up sharply. Another bad quarter will have some economists chanting the "R" word once again. Even if the "R" word does not crop up, is this anemic growth priced into the stock market? For additional discussion of consumer spending and demographics please see Economic Optimism Plummets Across Demographic Groups Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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