Wednesday, November 28, 2012

It's The Economy Stupid: Bridgewater on Divergence of Consumer & Businesses

Here is a brief blurb from Bridgewater and the divergence between Consumer Confidence and Cap Goods


As we have discussed, restrained business spending has been a drag on the US and global economy, even as consumer demand seems to have improved.  Business spending is an important source of total demand but is largely taken in response to demand from customers.  Since this summer, the slowdown in business spending was to be expected given the weakening of US and global demand.  But in recent months, US consumer spending seems to have picked up.  Despite this pickup, business spending has remained weak, surveys of capital expenditure intentions are mixed, and earnings season commentaries indicate ongoing worry about economic conditions.  This sort of divergence between the spending of businesses and the activity of their customers typically does not last long.  The longer it lasts, the more it calls into question whether demand is actually improving (since businesses see their own sales daily), or the more it suggests that business spending is about to turn and provide a secondary boost to growth.  Tuesday’s stats mostly showed this gap persisting, with the durable goods report showing core capital goods orders improving some from a very weak growth rate while the Conference Board consumer confidence measure ticked up to a post-crisis high.  The rubber band between consumers and businesses has been stretched, and it is not yet clear which way the divergence will be resolved, though the odds still favor an improvement in business spending that will reinforce the pickup in growth.



John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury


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