The professional future-tellers, the highly respected economists and analysts who have been glamorized in recent years by CNBC, CNN, and Bloomberg News all fall in a pretty tight range saying that markets should grow about 8-10% this year, the economy should grow about 3.5% and corporate earnings, about 10%. 

So far the Holiday spending season is outshining the more pessimistic prognostications of the more Scrooge and Grinch-like analysts.  On Monday the government reported that retail sales rose for the third straight month, despite rising fuel costs.  The end of the negative political ads, the highest job growth since 1999, and the recent drop in gasoline prices have all likely contributed to the improved mood and spending.

The government’s report that the growth in non-farm productivity dropped from 4.0% to 1.8% caused investor concern as the S&P fell 1.2% this week.  It was feared by some feared that the productivity miracle of the 90’s might be coming to an end.  We believe many of the drivers of productivity remain in place and that improvements will continue, albeit at a slower pace. 

The S&P 500 is up 1% so far this week and almost 8% in November.  Perhaps the single most important factor has been the 21% decline in oil prices over the past month.  Both shrinking demand and increasing supplies have contributed to the remarkable drop in prices.  But, still high at $43.00 a barrel, energy costs continue to blunt optimism on the strength of the recovery, causing particular concern in the area of consumer spending.  But recent historical evidence has been very positive. 

Stocks on average were slightly down this week and headed for the first down week in four.  Fears about inflation fanned by the Producer Price Index on Tuesday and the Consumer Price Index on Wednesday weighed on investor enthusiasm.  Mid-week, however, Housing, Industrial Production, and growth in jobs provided good news, lifting stock prices.

The election is over, oil and gasoline prices are coming down, the stock market is going up, and the job market is improving.  These trends suggest continued improvement in the consumer side of our economy and this week’s economic numbers certainly bear that out.  The loudest and best indicator, the stock market, rose 1% this week and is up over 7% since the end of October.  All these factors suggest a better holiday season for retailers, particularly online retailers whose sales are up over 12% compared to this time last year. 

Fully aware of how deeply seated emotions are regarding the past Presidential election, and how much we are eager to get it behind us, I will be brief on that subject.  However, it is important to observe what the market told us regarding our choice of President.  Despite our deeply divided political convictions, the market made no secret of its druthers.  In the months following the Republican convention in August, the S&P rose over 7%.  The market’s strength was all the more remarkable given the steady bad news of record-setting oil prices, Iraqi war casualties, and rancorous campaign rhetoric. 

Take the most contentious and bitterly fought election in modern history and blast it ubiquitously over satellite radio, regular radio, internet news and chat forums, your home phone, television with their endless supply of ‘spin-meisters,’ interlaced with ads uglier than yesterday’s, and you wind up pretty sour.  Try to take a break from it and you will be reminded once again by yard signs, public banners, and conversations in churches, clubs, barber shops, salons, coffee shops, delis, bars, and sporting events.  The election by its nature has reminded us of the country’s problems, the information age, but its nature, has made it virtually impossible for us to reflect without distraction. 

Aside from the ugliest political climate in recent American history, inflation worries of are beginning to rival those of oil concerns among those who are paid to prognosticate and pontificate.  The Consumer Price Index with volatile food and energy removed from the calculations was three times higher in September than in August.  The year-over-year measure was up 2.0%.  Record high oil prices are working their way into the prices of more goods and services.  The longer they remain high the more damage they can do.  Higher gasoline prices are almost a given at this point.