The economic data disappoints again today. Consumer confidence fell nearly 25% in August to the lowest level seen since April 2009. Meanwhile, the S&P/Case-Shiller Home Price Index was down 5.9% year over year and back to early 2003 levels.
Despite these headwinds and sluggish GDP growth in the first half of 2011, Ward McCarthy, chief financial economist at Jeffries, remains cautiously optimistic.
Why? The simple answer is manufacturing.
"Even though it is a small piece of the economy, it has really played a leadership role in this recovery, which began about two years ago," McCarthy tells The Daily Ticker's Aaron Task in the accompanying interview.
Like many optimists, McCarthy attributes much of the first half weakness to supply disruptions that were created by the Japanese earthquake and tsunami back in March. "Now the first step was that the U.S. auto manufactures kicked up their production schedules in July and again in August and of course that has secondary and tertiary effects," he says.
One of these effects was an impact on personal spending in July, which McCarthy points out came in much better than expected. Consumers may not be buying new cars in droves, but due increased level of U.S. car production, they do have more options to spend their money on.
It's Not All Roses
McCarthy's expects Friday's unemployment number for August to come in much worse than the consensus 100,000 non-farm payrolls. McCarthy predicts only 30,000 non-farm payrolls for August in part due to the 45,000 Verizon workers who were on strike during the survey period, and the fact that state and local governments continue to shed jobs.
Although he is steadfast the second half of the year will be better than the first, McCarthy recently revised down GDP growth for the rest of the year; currently he expects 1.8% growth in Q3 and 2.5% growth in Q4.
Bottom line: "I think it is going to stay very disappointing for a long period of time and I mean at least through 2012," he says.