No Good News

The economic data trends remain very poor. The bottom fell out of the economy starting in September.

The recent stock market bounce may reflect hope that there will be an improvement in the economy six to nine months down the road, but the current trends provide no such optimism.

Recent data have shown that:

1) Consumer spending is declining at a rapid pace. The holiday season was the worst in a long, long time.

2) Businesses are cutting not just payrolls now, but investment in equipment and software as well.

3) Nonresidential construction (office buildings) spending is now declining and may drop sharply in the months ahead.

4) Trade has moved to a negative factor from a strong positive, as weak overseas demand and a (slightly) stronger dollar has cut demand for exports.

5) Residential construction spending continues to decline.

That leaves only government spending as a possible positive factor. In the first quarter, it won't have a big impact. Through late 2009, however, the prospect of a massive $1 trillion or larger stimulus plan could make a big difference.

The December and January economic data are likely to be very negative. The longer term outlook will depend significantly on government action and whether or not such proposals will stabilize confidence (or possibly make matters worse).

Forecasts for the annualized change in real fourth quarter GDP are dropping to the -5% range.

*******************

Briefing.com's economic and interest rate outlook: