The Hunt for the Next 10 Bagger

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Smooth path for economy remains elusive
Surging growth in some areas offset by softness in others
WASHINGTON (MarketWatch) — After experiencing a series of ups and downs since the end of a recession in mid-2009, the U.S. economy appears poised for a smoother ride in the year ahead.

Or does it?

The signals, as usual, are mixed. Manufacturers are surging amid strong demand for autos and airplanes. And surveys of consumers and businesspeople show they are more confident about the economy than they have been in years.

Yet job creation decelerated in August to the slowest pace of 2014 and home construction sank 14.4% in August, another sign of a sluggish real-estate market.

The topsy-turvy nature of the U.S. economy explains why the Federal Reserve held off last week on changing its timeline on when to raise interest rates for the first time since 2008. Fed Chairman Janet Yellen said there’s still a “good deal of uncertainty” about the direction of the economy.

Whatever the case, a soft housing market is both a cause of economic slack and a sign that all is still not right in the U.S. economy. Far fewer families are buying homes compared to the number of new households created each year.

In August, economists polled by MarketWatch predict existing home sales will edge up to a 5.22 million annual rate from 5.15 million in July. The report will be released Tuesday.

Sales of new homes, issued Thursday, are projected to climb to a 435,000 annual rate from 412,000 in the prior month. That still wouldn’t equal the postrecession peak achieved 14 months ago, however.

Business better but ...

The other big report on tap this week takes a look at business spending in August. Orders for durable goods — big-ticket items mean to last at least three years — are expected to drop 14% mainly because of fewer bookings for expensive commercial jets. Orders soared 22.6% in July owing to a huge surge in contracts for Boeing.

A more important number to look at is a core capital goods, a number that strips out spending on transportation and defense and gives a better look at underlying U.S. business investment.

The good news? Business investment, a key driver of the U.S. economy, rose at a healthy 13.2% annual pace from May through June. And a flurry of new reports from manufacturers suggests no letup in sight.

Yet a different survey of CEOs of America’s largest companies indicates that many firms plan to cut back on investment in the waning months of 2014. The Business Roundtable said the percentage of companies that plan to boost investment fell to 39% from 44% in the second quarter.

AT&T Chief Executive Randall Stephenson said one of the reasons companies might pull back is because they are unsure if Congress will extend certain tax breaks that make it less costly to invest. Bills to extend the tax breaks, which have received bipartisan support in the past, are languishing in Washington as lawmakers focus on the fall elections.

Stephenson also said the zig-zag pattern of investment reflects a “slow-growth economy that ebbs and flows, and stops and starts.”

John Canally, chief economic strategist at LPL Financial, said he hears all the time, especially from small businesses, about their reluctance to invest even though many companies are in their best shape in years.

“Businesses still are leery of boosting capital spending in case another downturn is around the corner,” he said. “It’s hard to put a finger on why, but they are concerned generally about the economy.” http://www.marketwatch.com/story/smooth-path-for-economy-remains-elusive-2014-09-21?page=2

The Fed and Wall Street probably won’t get much clarity from the light spate of reports on the economic calendar. Sales of new and previously owned homes are on the docket, but they’ve been choppy for months. So too has been a key report on business spending and investment.

So the wait continues.
Slow home sales

Sluggish home sales has puzzled economists for months. Hiring is rising at the fastest clip since the end of the recession and the unemployment rate has tumbled to a six-year low, suggesting that more people are in a position to buy a home.

Instead, sales of new homes are rising at a surprisingly restrained pace and purchases of existing homes are actually lower compared to one year ago. Higher mortgage rates and tough lending standards have received some blame. And some economists wonder about the effect of high student-loan debt and slow wage growth on the ability of young people to buy a home. http://www.marketwatch.com/story/smooth-path-for-economy-remains-elusive-2014-09-21?link=MW_latest_news