Economic Forecast: Flurries Ahead

By Dian Vujovich

Surveys say investor confidence is soaring. Tuesday’s market rally was a testament to that. Today stocks were down. What’s it all mean? Confidence is one thing and reality another.

If you’re wondering what’s going to happen in the market going forward all you’ve got to do is look at a chart. Not just any chart but one of those big honkers showing the performance of the Dow Jones Industrial Average over the past eight or nine decades. Looked at from a distance you can clearly see that the long term trend for stock prices has been an upward one —even though the angled line is not a straight one heading up.

Looked at in shorter intervals of time, you’ll see that the DJIA performances dip and soar, remain flat or move slightly in one direction or another. Sometimes a combo of them look like letters—V’s and W’s come to mind.

Do enough of this kind of seeing and you can become a market forecaster or an economist who, like weather forecasters, can be wrong more often than right and still keep their jobs.

According to results from the most recent National Association for Business Economics survey, the economy will begin to expand in the third quarter of this year. (That’s based upon participant beliefs that the gov’s stimulus packages and Federal Reserve’s actions have pulled us out of the worst slump we’ve seen since WW2.) And, that job losses will continue to climb and consumer spending continue to fall.

You don’t have to be a college graduate to wonder about that. I mean, if fewer people are working it isn’t likely that much spending will be going on particularly since credit isn’t as easy to get as it once was. Unless, of course, the wealthy do all the purchasing. Or, the average Joe and Josephine have wads of money saved to spend, which we know they don’t.

Take that thought one step further and given that consumer spending accounts for 70 percent of our economy, it’s going to take a Houdini-like act to make our economy expand during the third quarter of this year (that would be during the months of July, August and September) if fewer people are working, gas prices are heading higher and saving money more important than spending it. (Our national savings rate is now over 4 percent—last year at this time it negligible.)

Ask me what that means for stock prices over the relative short-term and my economic weather forecast is: Shaky grounds and flurries ahead. That’s based on no-work-equals-no-pay-equals-less-spending and that equals slow economic growth. Sure my forecast has a good chance of being wrong but hey, has being wrong ever stopped John Matthews or Eric Burris from forecasting the local weather?