Progress On the Economy

The most recent GDP release this week suggested that the economy might be slowing down.  The 1.8% annualized rate of growth during the first quarter was down from 3.1% in the fourth quarter of 2010.  Most economists passed this off as temporary, and being due to bad weather and increasing prices (i.e. inflation).  But we feel that this slowdown was also due to the tsunami in Japan and its aftermath.  The Japanese economy ground almost to a halt in the days after the tsunami.  The crisis with the Fukushima nuclear reactors did not help, either.  

How does this affect the U. S. economy?  The Japanese auto companies are reporting parts shortages due to plant closures that will affect their auto production for several months. This includes auto plants in the U. S., such as the Toyota plant that was built on the outskirts of San Antonio, Texas and the plant in Georgetown, Kentucky.  My sources tell me that there are also certain food products (inputs to processed foods, such as spices) that are only, or mostly, produced in and around the Fukushima plant.  They will now be unavailable to food producers here in the U. S. for the forseeable future.

We also believe that this slowdown is temporary in nature.  One bellwether stock that we keep our eye on is Leggett & Platt.  Leggett & Plat is a producer of residential furnishings, commercial fixtures and components ( such as store fixtures and point-of-purchase displays), industrial materials (such as wire drawing, wire products and steel tubing) and specialized products (that serve the auto, machinery and commercial vehicle production industries).  This company blew past earnings estimates today, and its stock price increased over 7% on the announcement.


This tells me that the economy is getting stronger, even though the total growth in the economy seemed to slow down a bit.


For now, we are still constructive on the U. S. economic growth and believe that as earnings improve, so will stock prices.