Sauce for the Goose

Sometimes life imitates art. And sometimes an economy imitates a company.

I wrote yesterday how inventory spikes can show that something is up at a company—maybe customers aren’t so keen on a new product, or a new plant location isn’t working out so well. The same can be said about economies. And we’ve got a little hiccup in the latest GDP reports that might mean something.

In the fourth quarter the economy grew at a satisfying real rate of 3%. Combine that with 2% inflation and you’ve almost got a normal looking economy—if you ignore 7-9 million folks currently looking for work! But there’s a fly in the ointment. During the third quarter final sales—a measure of consumer demand—grew 3.2%, a little higher than the overall economy. But during the fourth quarter, the one with Thanksgiving, Black Friday, Christmas—final sales were up only 1.1%, hardly a resounding boom. In fact, growth that modest is hardly growth at all. The majority of the quarter’s growth came from inventory accumulation in the economy: store shelves, dealer showrooms, and so on.

Well, inventory spikes are one of the things we look out for in financial statements. They indicate that customers may not be so positive. In this case they may be indicating a little more reluctance by American consumers to part with their cash.

But consumer demand is a funny thing, and it shifts around from quarter to quarter. Lots of factors may be causing the squiggles and jiggles in the official statistics. We know that jobs are growing, and with that growth will come consumer spending. And we know that the economy is recovering. But we’re just not sure how strong this recovery is. Time will tell. But for now, this report leaves a question or two.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-09T16:03:58+00:00 April 3rd, 2012|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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