Tipping Points

Seeking the Number That Explains It All


Is the U.S. poised for robust growth? Or is the expansion still anemic? If you go by payrolls, the economy remains in a rough patch. Other data give hope. Tax receipts are rising—showing that Americans have more income. Jan Hatzius, an economist at Goldman Sachs (GS), looks at how fast households are paying down their debt. The paydown rate has slowed, he says, a sign consumers are more confident about the future. Here, four economists discuss their favorite indicators.

REAL CONSUMER SPENDING

Dean Maki, Chief U.S. economist, Barclays Capital (BCS)

Est. fourth-quarter annualized gain: 2.9%

Statistic to watch: Real consumer spending. "It grew 2.8 percent [annualized] in the third quarter, now it's tracking 2.9 percent by our estimates. When that 70 percent of the economy is growing at a solid pace, you need some shock to come along to disrupt spending."

Forecast: "We're past the period of worry that consumers wouldn't spend the money they're earning or earnings would fade into a downturn. When businesses and consumers are spending, that creates a virtuous cycle."

PRODUCTIVITY

James Paulsen, Chief investment strategist, Wells Capital Management

Third-quarter year-over-year change: 2.5%

Statistic to watch: Productivity. "Initially jobs don't show up in the recovery because we have a CEO culture that's focused initially on cost-cutting and productivity. But the good thing about that is when productivity slows down, then jobs show up. Productivity growth slowed in the summer and is now on a slower trend."

Forecast: "We're going to have job gains around 225,000 average monthly next year, and that means confidence is going to go up, consumer spending is going to go up, and corporations are going to say this looks sustainable."

NONFARM PAYROLLS

Dan Greenhaus, Chief economic strategist, Miller Tabak

November job number: 39k

Statistic to watch: Nonfarm payrolls. "It's so clichéd and obvious, but it's jobs. The simple statement is growth is not enough. We are creating jobs, but we're not creating enough because we're coming from such a deep hole."

Forecast: "It's increasingly clear the economy is growing faster. The important part of the story here is that, yeah, things are going to get better, but it's by no means good. When the economy recovered in 1983, it averaged a near-8 percent growth rate."

HOME PRICES

David Rosenberg, Chief economist, Gluskin Sheff + Associates

Annual home price gain through Sept.: 0.6%

Statistic to watch: The S&P/Case-Shiller 20-city index of home prices. "We seem to be getting another down leg in home prices. That has obvious implications for consumer confidence and home equity values. The wealth effect on spending from housing is almost three times as powerful as the stock market."

Forecast: "We had a mini-inventory cycle that brought us out of the recession. But outside of that, we've had Uncle Sam's generosity. There are three risks: deflationary shock out of Europe, dramatic spending cuts on the state and local level, and home prices."

Schlisserman is a reporter for Bloomberg News.

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