Small-Cap Investor Forum

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Mixed Signals From Key Economic Indicators

In case you haven’t guessed, one of the most popular activities for the past several months has been the search for a bottom to the seemingly endless global recession. It was easier in the past. A few national indicators would begin to pick up, and you knew the economy was finally on the upswing. But that’s all changed now. Today the U.S. is locked in a complex economic dance with Europe, China, Japan, and the rest of the world. With so many new variables, clear signals in any given direction are hard to come by. Add to this the fact that unmet expectations can make an outwardly straight-forward signal considerably less clear, turning positives into negatives.

According to the Commerce Department, U.S. retail sales advanced in January, what would normally be considered a healthy sign following what is now being called a relatively flat December. But few cheers were heard because the increase was less than some had expected. Moreover, part of the increase came in the form of higher prices being paid at the gas pump. Nevertheless, even after the price of gasoline is removed, retail sales still saw healthy growth, signaling the beginning of a positive 2012 to some forecasters.

However, another dampening factor is the continuing European crisis, with Moody’s now lowering its ratings on Italy, Spain, and Portugal. As America’s major trading partner, Europe affects U.S. exporters, multinational companies, and ultimately every American. What happens in Europe definitely doesn’t stay in Europe.

And then there’s oil. The price of oil has apparently begun to reverse earlier declines. But what would normally be seen as a gauge of possible economic growth now comes with an enormous amount of baggage. Instead of reflecting positive activity, it is linked with growing tensions between Iran, Israel, the U.S., and Europe. Clearly any disruption in the flow of oil from the Persian Gulf could lead to major jumps in the price of oil all over the world. And high oil prices could easily set back any meager progress being made in Europe, which in turn would affect the U.S.

No matter what metrics you use, the interpretation is increasingly mixed and less meaningful for forecasting. The fact is that key economic indicators just aren’t as key as they used to be.