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Feeling Better But Not Healthy

September 11, 2009 – 9:37 am

The various economic reports this week continue to hint at signs of improvement. This morning it was a slight uptick in consumer sentiment numbers for September (though they are still low), and a reduction of wholesale inventories by 1.7% while sales of that inventory rose .5%.

Even though the statistics being reported are improving and our economy will return to growth as soon as this quarter, the strength of the recovery implied by these numbers is going to be weak. There will be a spike initially because of inventory rebuilding but the consumer is still in shock. Value in his/her home has collapsed, their retirement account has been crushed and jobs are still being lost. It will take time to heal these wounds. The consumer has decided it is time to start saving money as seen by the recent uptick in the savings rate. That, in the short term, will tend to retard our economic recovery but in the long run it is very healthy. The consumer is the driver and though he/she might be out of the emergency room he is still very ill.

Yes, we will recover, that is not the issue, the issue is how strong will the recovery be and can it be sustained? That mystery can only be revealed with time. Some illnesses are slow to heal.

Good Trading
Steve Peasley

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