Is consumer so important?

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As discussed in another thread, calling the end of financial crisis might be smart now. Stock market always looks forward. After financial crisis, the next question is whether we'll see a short and shallow economy downturn. Many people, including ECRI, focus on consumers and use it as an leading indicator.

 

The logic is really straightforward. If we view the economy as a link, i.e.

consumer --> retailer --> manufacture --> mining and agriculture

 

with consumer sits on the top of the link, one would be deeply worried when consumer stopped functioning well. Bank and tech are not on the link because they are services to the economy and will be as well affected by the economy and thus the consumer.

 

I was worried by dim consumer sentiment a while ago but after some rethinking I kind of discounted its importance. The link is an oversimplified model to the economy. Who are those consumers? they are employees of retailers, manufactures, mining and agriculture. So instead of a link, it’s actually a network. With that in mind, until we see evidence that most parts of the network is affected, it’s ok to remain optimistic that resilience at other part will bring consumer sentiment back to normal level.

 

This ER season may offer some insight. When company report their quaterly result, they report two important numbers, earning and sales. The two numbers have different economical meaning and should be treated differently. Sales indicates the demand to the products or services the company provided, while the earning indicates how effective the company draw cash from its operation. Certainly earning is more important if one want to forecast its stock price. The sales number, on the other hand, tells us the healthiness of its downstream companies. If the downstream companies is not healthy, they surely will not incur much more demand, and the sales of the upstream company will be reduced.

 

Does this ER season tell us that the other parts are affected? With sales keep rising (if i remembered correctly, GE's sales still beat expectation), I didn’t see any evidence, yet.

[ 本帖最后由 还在发呆 于 2008-4-16 02:26 编辑 ]

CoolMax

Sales number要考虑美元贬值因素。

happylux

主流媒体关于GE ER的评价：
"On Friday, General Electric reported an unexpected 6 percent drop in profit, shocking investors into discounting its shares by more than 12 percent. And though the pain was worst at GE's financial divisions, health care and household appliances were also hit hard. Disturbingly, GE's results point to an overall weakening in U.S. capital spending.

If people and businesses spend less on capital goods like refrigerators or plant equipment, margins are squeezed, unemployment rises and the negative feedback loop of real estate, consumer spending and bad debts gets another jolt."

ychen222

不同意这种说法。长期来看美国的经济振兴和竞争力靠金融和科技，消费起落只是一场游戏，不是主导力量。

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2#

 

For a couple of reasons I discounted inflation of dollar

(a) depends on what you compare to, inflation is either marginal (core-CPI) or astonishing (gold price)

(b) major part of U.S. companies' sales are within U.S. thus exchange rate has only fractional impact

 

3#

 

I have to admit that most of my thought is against main-stream media. Is 5.1% unemployment rate low or high? It is higher than that of past 4 or 5 years. but in the long run, it's kind of moderate.

 

4#

 

why you disagree with me? doesn't the title of my post translate word by word to "消费起落不是主导力量"?

ychen222

Sorry that I had not read all your post before I wrote that reply. Actually I should agree with you that customers are not the key (or say leading force) of US economy.   

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原帖由 ychen222 于 2008-4-16 13:58 发表 Sorry that I had not read all your post before I wrote that reply. Actually I should agree with you that customers are not the key (or say leading force) of US economy. & ...

 

no sorry. skeptical stance is welcome. i personally hold skeptical stance when reading all news reports and analyses.

jsl

aggregated demand includes consumer spending, corporate spending, goverment spending. The goverment is running deficit, we can't ask too much from that, otherwise we are going to see dollar drops more.

Corporate spending currently is tied up with overall sentiment and very much controlled. It had been a strong driver of the economy in the past few years.

Consumers were the most resillent, at least during the past few hiccups.

Since companies still have plenty of cash in hand, if consumer strength can convince them that this recession is a short one, pretty soon, an economic recovery will be on its way. However, many structural changes have made things quite complicated.

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原帖由 jsl 于 2008-4-16 23:16 发表 However, many structural changes have made things quite complicated.

 

good post!

 

can you elaborate more on the "structural changes"? one thing i know is that corporate borrowing cost is increased. many banks scraped loan agreement even at the cost of being sued by corporate borrowers.

jsl

inflation may eventually ease, but high energy and food price will stay.
"credit crisis" dropped out of the top ten news, but the credit bubble hasn't been deflated yet.
borrowing cost as a result is not cheap.
International firms benefited from global trades, they might see the lag effect sometime.

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原帖由 jsl 于 2008-4-17 00:00 发表 inflation may eventually ease, but high energy and food price will stay."credit crisis" dropped out of the top ten news, but the credit bubble hasn't been deflated yet.borrowing cost as a result is no ...

 

 

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 蓝钻诶

Cobra

胡同FA讲得太少，我发现你和jsl是这方面的宝贝，所以要重点关照。:(13):