Growing Uncertainty = Poorer Economic Numbers
No matter how you parse it, today’s Philadelphia Fed number disappoints. It is hard for US consumers and companies to step up demand in an economy that continues to let them down, while offering little in terms of stability for the future. I expect US data will continue to be weak through the end of this year; in part due to the election cycle, but also due to the uncertainty surrounding both the US Congress’ and the US Fed’s ability to confront the looming US Fiscal Cliff.
While it is true that the backdrop of European uncertainty continues to weigh on the US economy’s shoulders, it is not the main cause of uncertainty, nor should it be made the scapegoat. US consumers and Corporate CFOs share a common anxiety over a number of issues in the US. Be it uncertainty over the safety of their financial institutions following MF Global, Lehman Brothers and Knight Trading news; uncertainty over the reliability of their financial institutions following the LIBOR fixing scandal and apparent lack of Federal/Regulatory oversight; and finally uncertainty over the willingness of the US Congress to confront the US Fiscal cliff coupled with the US Fed’s ability to do much more given the increasingly diminishing returns of QE.
All of these uncertainties cast a shadow over confidence and spending. Only with confidence will we see an uptick in the economy, and with that an increase in equity volumes.