WILL THE BLUES SEE RED FOR THE GREEN?

7.31.03 Economic Update (Lincoln Anderson, CIO of LPL Financial Services, July 31, 2003 Client Dispatch, www.vonborstel.com)

"For five years I worked at the agency that generates the GDP data (the Bureau of Economic Analysis) and have been looking at these reports for nearly thirty years, so I have some experience in evaluating these data. In general, I like what I see in this report. It is starting to look like a more balanced economic engine that, while not yet hitting on all cylinders, is rapidly headed in that direction. Consumer spending was strong, rising 3.4% in real terms. Housing rose 6.1%. Business spending is starting to turn back up. Business investment in equipment rose 7.4% and spending on business structures finally rose 4.8% following six straight quarterly drops. This upturn in private sector demand was partly met from inventories, which fell over the quarter and from imports, which rose sharply. The drop in inventories is likely temporary and I expect U.S. companies will be gearing up production over the second half of the year to meet stronger demand and to rebuild inventories. This should continue to spur capital investment and finally start to generate rising employment.

Inflation remains very subdued, with the GDP price index rising at an annual rate of only 1% in the second quarter. But prices do appear to be rising, so I think the deflation scare is ending. I expect the improvement in the economy will translate into higher company earnings, both from top line (revenue) growth as well as from lower costs. While not all large companies have reported second quarter earnings yet, of the 361 companies that have, 75% have met or beat earnings expectations, so we are getting some confirmation."

At least anecdotally, continuing to sell the US economy short, as many on the Left are doing today, looks to be more like wishful thinking than even a strategic bet. Of course, there's no perfect crystal ball. But the present combination of money supply, fiscal/tax policy, lean inventories and impressive productivity may make running a campaign against this economy utter foolishness, if not by November 2004, certainly in hindsight shortly thereafter.

Then came yesterday's Factory Orders numbers further buttressing the notion that things really are improving.

There's an increasingly viable chance Mr. Bush could be pointing to 11 consecutive quarters of economic growth by this time next year. And, if you must finance a budget deficit, one could argue doing so at today's interest rates should work even better than it did in the 80's when rates were through the roof.

As usual, Dems would do well to find something to run FOR rather than against. But what fun would that be? Posted by John Resnick at August 5, 2003 4:36 PM