Economic 'Experts' Left in the Dark, Ignore the Facts

Tuesday, 17 Aug 2010 10:23 AM

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While the majority of Wall Street analysts, economists and stock-market pundits that regularly appear on TV financial-news programs continue to claim that the so-called economic recovery remains fully intact, the facts continue to paint a different picture.

For example, agencies of the U.S. government reported this morning that the construction of new homes in the United States remained near historical lows last month while the pace of increase in our nation’s industrial production declined during July, as compared to the same month a year ago.

Those reports follow an announcement released yesterday showing that manufacturing activity in the tri-state area of New York, Connecticut and New Jersey slowed for the second month in a row during the first half of August.

ALERT: Frazier: Stocks Rolling Over. Get Out Now.

Separately, the National Association of Homebuilders announced yesterday that its most-recent survey of U.S. homebuilders indicates that sales of homes in the United States will continue to trend lower during the months ahead after rebounding slightly during June.

Some other significant economic reports issued during the past 10 days revealed the following:

• The number of goods produced (per hour) by U.S. business’s fell during the second quarter of this year, as compared to the prior quarter, while the costs to produce those goods (per hour) rose.

• The sales-to-inventory ratio for U.S. businesses declined for the second month in a row during June – the latest month for which data is currently available – thus indicating that sales declined at a faster pace than inventories during the past two months.

• Sales of goods by U.S. retailers, excluding sales of automobile and gasoline, fell during July. Although auto sales rose modestly, their pace of growth slowed substantially compared to their sales pace during the first six months of this year.

The developments outlined above suggest that the pace of increase in corporate profits will slow considerably, or that profits might decline, in the aggregate, during the remaining two quarters of this year: (Profits = Sales Revenues – Operating Expenses).

If corporate profits do decline during the next two quarters, there’s a good chance that stock prices in general will fall sharply by the end of this year. That’s because stock prices tend to move in the same direction as corporate profits.

Meanwhile, the latest survey of U.S. employers conducted by global outplacement firm Challenger, Gray & Christmas indicates that businesses here will continue to reduce the sizes of their workforces during the next few months.

Considering the fact that personal consumption expenditures tend to account for approximately 70 percent of the total output of goods and services in the United States — gross domestic product, or GDP — and that business inventory replenishments were largely responsible for the recent improvements in GDP, there’s a good chance that economic growth here will come to a halt later this year if the employment situation and business sales don’t improve substantially.

I therefore urge you to stop listening to most of the so-called analysts, economists, and money managers that regularly appear on broadcast financial programs and instead to begin focusing on the facts.

Note from Moneynews:
If you’d like to be kept abreast of actual economic and financial developments and their longer-term effect on securities prices (rather than relying on misrepresentations like the ones discussed above), try a free sample of David’s investment advisory service, The ETF Strategist. Click Here to Find Out More.

About the Author: David Frazier
David Frazier is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes two very successful investment newsletters. Discover more by Clicking Here Now.

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