Glad to be glum
Simon Ward
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Have you noticed how every piece of US economic news is being written up bearishly? Such one-way sentiment often signals an imminent reversal.
Take last week’s figures on new home sales, which – incidentally – are a better guide to current housing market conditions than existing home sales, because of a shorter reporting lag. New sales rose by 4.8 % in September while the stock of unsold homes fell again to a 20 -month low. Was that the message you got from your favourite economics correspondent? Of course not. I bet he / she talked about sales reaching an 11-year low in August, while opining that the September rise was a bounce of the dead feline variety.
Or consider yesterday’s consumer confidence number for October, which “slumped to a two-year low” and “raised the prospect of a marked deterioration in business conditions in sectors such as retail and consumer goods”. Call me senile but I have no recollection of the late 2005 consumer collapse. Take a look at the chart, which plots quarterly consumer spending growth with the confidence index. Does the recent move lower look like a “slump” to you? The relationship is not particularly close but it is a stretch to argue that spending is about to plunge .
GDP growth should slow in the fourth quarter but when expectations are this low it doesn’t take much to generate a positive surprise.
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