Eventually, insight surrenders its luster, sheds its horsepower. This is part of the cycle - economists catch on, reality is priced in and we move to the next opportunity.
Our method is to set anchors for clients so they may weather the storm, that confusion regarding economic reality just ahead.
Early on we put the spotlight on three US sectors where clients could expect results to flatten estimates – manufacturing, job creation and spending. Having the flaw to economists’ models in hand gave us a leg up on price discovery. These were set Q4 and again, early Q1. But are they still needed?
It seems most of the vigor we identified in manufacturing is now priced in. So we don’t expect this week’s related releases to vary much from expectations.
We explained in Friday’s sketch that job creation (and soon too, earnings) will continue to broach estimates. That anchor has of course served us very well and remains in place.
This brings us to spending. There has been some slippage; Retail Sales for Jan were disappointing, only modestly above the Q4 average pace. But recently we have seen a burst from the consumer, in vehicle sales for example, higher earned income or not. On Tuesday we have Retail Sales for Feb and we can expect these to come in better than forecast.
Crude prices remain the piano just overhead. The average price for regular gasoline is $4.35 in our neighborhood. At that price, the consumer may drive 3 miles to a restaurant but not the 15 to get to the old favorite.
Despite an upcoming 6-nation summit with Iran, violence is still very much a possibility, especially if the mullahs miscalculate. The Saudis say they will chip in, but don’t count on it as they too could be in the crosshairs. But we don’t need violence, simply the enduring threat of the same. Then five dollar a gallon gasoline will severely brake the world’s #1 engine.
Robert Craven
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