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Rules-of-Thumb . . . and other Truths

01/28/2013

I’ve been a member of the National Association of Business Economics (NABE) for many years.  The joke is that we are more reality-based and less nerdy than academic economists.  I don’t know about that, but the information is certainly more useful.  Today, NABE released their survey of economists about the economy during the fourth quarter.  I’ll bet it was stronger than you expected.  Read this excerpt:

 “The economy continues to soldier on. Sales growth was stable, even amid widespread uncertainty surrounding the potential impact of the fiscal cliff, but gains in profit margins slowed. More than one quarter of survey respondents said that their firm postponed at least some hiring and capital spending in the three months leading up to the then-impending fiscal cliff. The broader labor market nevertheless gained momentum in the fourth quarter, but increases in capital spending slowed. While the panel was nearly unanimous in its view that the economy will expand over the next four quarters, it was split as to the degree of growth expected. Half the panel reported that their firms’ internal planning assumes real GDP growth of between 2 and 4 percent, while the other half sees growth coming in below 2 percent. Hiring plans are reportedly picking up, though capital expansion plans are slowing. Still, more firms expect to add jobs and boost capital spending than to cut them in 2013.”

Here is what I find unusual — the stock market usually telegraphs pending changes in the economy.  The old rule-of-thumb was that the stock market would improve about 5-6 months before the economy turned around.  In this case, the market started improving in December, AFTER the economy picked up strength.  Clearly, this reflects the level of anxiety about our political gridlock and fiscal drama.  It is a rare occasion when investors follow the economy, instead of leading it.  Only politicians could cause that!

So much for rules-of-thumb . . .

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