The economy is looking increasingly dicey for 2010. Sure, things look OK right now. The most recent numbers are, in fact, reassuring. The United States seems to be on track for something like 3% economic growth in the fourth quarter. That would be a slight acceleration from the 2.8% growth in the third quarter. And it would put the economy on track for the kind of decent, but not great, recovery in 2010 that most investors and economists are expecting.
But recent numbers suggest that instead of accelerating off that fourth-quarter growth, the economy might be headed or a slowdown in 2010. Not all the way back to negative numbers but definitely a deceleration at a time when just about every stock is priced for acceleration in revenue and earnings. There’s nothing certain in these numbers. And I’m sure some of you will add them up differently. But let me give you the evidence that growth, rather than picking up, is going to start sputtering in 2010.
Now, why am I worried about 2010? Anecdotal evidence—which is often less reliable than official surveys but runs ahead of the official surveys—show signs that the economic stimulus from last February is wearing off sooner than expected in some sectors of the economy and was indeed, as some of us worried at the time, too small to stem the rise in unemployment.
In the construction industry, for example, anecdotal evidence gathered by the Wall Street Journal strongly suggests that highway-construction companies have just about completed the small projects funded by the February stimulus package. Even with the stimulus work, unemployment in the construction industry had climbed to 19.1% in October from 10.7% in 2008. The stimulus bill provided only $28 million (out of $787 billion) for highway construction. And while stimulus money for bigger projects is still working its way into the economy, that $28 million was spent largely on smaller “shovel ready” work that has just about been completed. A recent survey by the Associated General Contractors of America indicated that 44% of contractors expect to lay off additional workers because of economic conditions.
There is also no sign yet that manufactures are willing to bet on the economic recovery and build products before they have orders. An analysis by Briefing.com showed production falling slightly, even as manufacturing continued to expand, in response to a drop in new orders in October. Orders picked up again in November, but the production numbers didn’t. This manufacturing to orders is also reflected in inventory numbers that show that no one is willing to build inventories in anticipation of future orders and sales. When orders fall, manufactures cut production rather than keeping machines running and building inventory. While it is a big positive that manufacturing is expanding, these numbers show that confidence is still extremely fragile as a whole.
Tags: 2010 recovery, build confidence, economic recovery, economic slow-down, expanding unemployment, fourth-quarter growth, unemployment, Wall Street Journal
