Want to help the economy recover in the 2nd half? Buy a new car or truck.
Economists have been missing their economic forecasts by wide margins all year. Early in the year their consensus forecast for 1st quarter GDP growth was 3.5%. In the final weeks of the 1st quarter, as economic reports worsened, they frantically lowered their forecasts but were still too optimistic when the quarter came in with only 1.9% growth.
Even so, they were sure the 2nd quarter would show a quick rebound and left their forecasts for 2nd quarter growth at 3.5%.
Now, in the final weeks of the 2nd quarter, as economic reports have worsened even further, they have lowered their forecasts to an average of about 2.4% growth.
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But they are still leaving their forecasts for the 2nd half unchanged at 3.5% to 3.9%.
Will they be behind the curve again?
Apparently it depends a lot on the auto industry, and whether it can rebound quickly from the production slowdowns created by the parts shortage dilemma after the Japan earthquake/tsunami disaster.
Macroeconomic Advisors says its 3rd quarter GDP forecast includes 1% of growth coming just from an improvement in auto-production (even though auto production accounts for only 2.5% of the economy). And Morgan Stanley, which is forecasting 3rd quarter growth of 3.9%, says expected improvement in the auto sector accounts for 1.5% of its forecast, more than a third.
So, keep an eye on what the car-makers have to say for an indication of whether economists are still smoking the wrong stuff with their forecasts.
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With the current quarter forecast of growth running at just over 2%, June economic reports coming in weaker than forecasts, and the 3rd quarter beginning in just a few days, it seems the entire economy, not just the auto sector, would have to make a heck of a dramatic upturn in July for the 3rd quarter to reach the 3.5% to 3.9% growth that is being forecasted.
Short-Term Oversold Rally Still Likely.
A couple of weeks ago I noted the short-term oversold condition beneath the 50-day m.a. and predicted a rally off the oversold condition. I noted the first resistance would be at the 21-day m.a., but the 50-day would be more likely.
Last week the market was up for 4 straight days, reaching its 21-day m.a., and then was down for 3 straight days, looking like the resistance at the 21-day m.a. had stopped the rally.
But that brief rally did not alleviate the oversold condition beneath the 50-day m.a., and our short-term indicators remain on a short-term buy signal.