David Kelly: Economy has what it needs to see growth in 2011
The week ahead should be a quiet one for markets, foreshortened by the Thanksgiving holiday
David Kelly is the chief market strategist at JPMorgan Funds. The following is his market commentary for the week of Nov. 22.
The week ahead should be a quiet one for markets, foreshortened by the Thanksgiving holiday.
The most important economic number is Tuesday’s revised look at 3rd quarter Real GDP, which should show an increase of roughly 2.5% annualized, compared to an original estimate of 2.0%. These numbers, along with Wednesday’s release on October Personal Income and Spending should confirm that the economy has been gathering some momentum in recent months, while still well below the pace necessary to make a significant dent on unemployment.
Unemployment Claims, on Wednesday, may see some increase following readings in the 430,000’s in three of the last four weeks. Durable Goods Orders, also due out on Wednesday, may experience a pullback due to a decline in the volatile aircraft category, but will be watched closely for signs of momentum in other areas of capital spending. Existing and New Home Sales, due out on Tuesday and Wednesday respectively, should continue to show a very soft housing markets despite extraordinarily low mortage rates, highlighting one of the limitations of the Federal Reserve’s aggressively accomodative monetary policy.
Finally, on Wednesday, the University of Michigan will release its final reading on Consumer Sentiment for November. A small gain seems likely, based on other polls, although the small sample size of the Michigan survey increases the risk of a surprising reading.
On Thursday, America will eat and rest and on Friday, hopefully go to the stores. The ritualized over-consumption of Thanksgiving week, including the insanity of pre-dawn Friday sales is an important constant in the American economy. Two years ago, at this time, the world’s economy and financial markets were in convulsions. One year ago, the economy had hit bottom, but few recognized it. This year, there are signs of stabilization and modest improvement.
Of course, there is still plenty to worry about including uncertainty about tax rates in 2011, a seemingly over-easy Federal Reserve, European debt problems, concerns about Korean nukes and a slow upward creep in oil prices.
With all this being said, with improved balance sheets, very low interest rates, and still-rising pent-up demand, the economy probably has what it needs to see some acceleration in growth in 2011. This should, in turn, lead to both higher interest rates and higher stock prices giving balanced investors clearer reasons to be thankful a year from now.
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Tuesday, November 23rd
Q3 GDP 2nd Est Last
Real GDP, %ch, ann rate 2.5% 2.0%
GDP Deflator, %ch, ann rate 2.2% 2.2%
Existing Home Sales Forecast Last
Sales, mils, ann rate 4.470 4.530
Inventories, mils 4.010 4.040
Wednesday, November 24th
Jobless Claims Forecast Last
Initial Claims, 000’s 444 439
Continued Claims, 000’s 4,270 4,295
Durable Goods Orders Forecast Last
Total, %ch – 1.2% 3.5%
Ex. Transportation, %ch 0.1% – 0.4%
Personal Income and Spending Forecast Last
Personal Income, %ch 0.6% – 0.1%
Consumer Spending, %ch 0.5% 0.2%
Savings Rate, % 5.4% 5.3%
New Home Sales Forecast Last
Sales, mils, ann rate 0.302 0.307
Inventories, mils 0.196 0.204
Consumer Sentiment Final Prelim
Index Level 70.5 69.3
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