21 Dec 2007 Three-and-a-Half Shopping Days Left!

As economists grapple with where this economy is going the American consumer continues to surprise and amaze. The latest government figures, released today show that consumer spending rose considerably more than forecast in November. Purchases gained 1.1% in November, well ahead of .7% estimate. That is the highest rate of increase since the 1.2% increase in May 2004. It helps allay fears that the economy is falling so fast it cannot avoid recession. 

The report is an outlier among numerous others pointing toward a slowing economy.CircuitCity, Best Buy and other retailers are warning of a slump. The Reuters/University ofMichiganfinal index of consumer sentiment for December dropped to 75.5, the lowest since October 2005. The gauge has averaged 88 since the index was introduced in 1978, according to Bloomberg. 

Yesterday, the government reported that the index of leading economic indicators fell for the third time in four months in November. The gauge suggests the direction of the economy over the next three to six months and heightens worries that the deepest housing slump in 16 years, rising foreclosures, banks’ reduced lending, declining property values, and rising energy costs are weighing on consumer spending, which accounts for more than two-thirds of the economy. 

Indeed it appears likely that the November spending boom may not be sustained.Holidaysales declined in the seven days ended Dec. 15 for the third straight week, according to ShopperTrak RCT Corp. The Wall Street Journal reports that this year’s holiday season may be the weakest since 2002, according to the National Retail Federation.

Technology stocks are keeping the equity markets buoyed as companies like Adobe (graphical design tools), Research In Motion (BlackBerry phones), and others report earnings well ahead of expectations. Their profits suggest that tech companies are in the global economy’s sweet spot. Companies are investing in their products and services to remain competitive while the consumer is clearly gadget-focused this Christmas. It’s why our largest equity holdings remain in the NASDAQ 100. 

Spending this holiday season may or may not be enough to keep the economy from drifting into recession. Either way, we believe we are invested appropriately, given the information at hand.

For now, God bless us, everyone