The unemployment report came out today and was for the second month in a row, disappointing. The market headed lower but Europe was partly to blame as their markets had been down 1% by the time ours’ opened.
So far 2012 rhymes with 2011. In the 1Q of 2011 economic news seemed to be getting better but spring came and the economy started to disappoint again, you had the Japanese disaster and stocks sold off quite a bit through the fall.
In 2012, 1Q reports were good, stocks went up, times were good. But come April news began to disappoint again.
What is going on?
In 2011 economists erred by giving too much credence to reported growth by giving too little attention to the portion of reported growth that was actually just inventory building. Inventory building works like this – when times are lean companies make less and they let inventory get low because they expect future demand to be lower. When things seem to be picking up they have to produce widgets not only for the people buying them but also to rebuild their inventory levels back to normal. People buying is real demand while inventory building is not. Manufacturing more widgets to put more on your own shelf is not real demand. Much of early 2011 growth was actually inventory building and what’s more, people knew it at the time.
This year people overestimated economic growth because the US had an exceptionally warm 1Q. Builders started building earlier than normal, customers went out shopping earlier than normal, etc. Then came April and people did not need to buy because many had already done their spring shopping. So, sales dropped. Make sense?
The other big issue on which people are confused is the unemployment report, a report that I have complained about in many of my missives. My next post will address that specifically but suffice it to say here that unemployment looked artificially good last quarter and now the last two reports have been rather poor.