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The Recovery is Still a Capital L; True Uncertainty is Back

We have some good news and some bad news and they continue to cancel each other out.

By Dr. Joe Webb
Published: November 3, 2010

We have some good news and some bad news and they continue to cancel each other out. The good news is that both ISM reports, manufacturing and non-manufacturing, were very good. They weren't the best reports, but they were better than what we've had lately. The stock market, as measured by the NASDAQ, also had a good month. Proprietors income, our measure of small business, was up. Our recovery indicators look much better than they did last month.

That said, last week's GDP report was a disappointment, with most of the growth from inventory build-up (see this week's chart). The personal income report showed a decline in disposable personal income (income less taxes), which is not a good sign at all for the holiday shopping season. Retailers may be prepared for it. If special sales and deals are in short supply it will be because they did not aggressively stock up on holiday inventory, but disposable personal income headed down does not bode well. I have already been asked what the effect of the elections will be, and I will not have any specific comment yet because I'm still trying to understand what happened in state legislatures, which in some cases were significant changes. On the national level, it will take some time to sort out, but I would suspect that the incredibly annoying 1099 situation will be remedied soon, and there will be some action on tax rates, but if anyone says when, where, or how much, they're lying. One of the effects of the election seems like it will be that Paul Ryan will become head of the House Budget Committee, and he is viewed with great respect by both parties. That position might be the most important one going forward. As for the remainder of this session which is filled with lame ducks, it will be quite interesting to watch as representatives attempt to do last favors for constituents back home while they can. I have said that businesses were not acting on uncertainty but certainty over these last months. They knew that their taxes were increasing and their regulatory burdens were going to increase because the laws were passed and people could see exactly what they were. Now, in the post-election days, uncertainty is back. Now the question is what will be legislatively attainable and in what time frame. This is true uncertainty because the newly elected representatives do not take their seats for more than two months. They are powerless until that time, but they will all be jockeying for position. Don't let any of it get in the way of business decisions. The economy is still not growing, and the laws that were passed are still in effect. The technological and demographic trends are stronger than the ebbs and flows of macroeconomic measures. The Internet, social media, tablet computing, and broadband are not about to be repealed. Corporations are not having their budgets restored because of the election. Keep an eye on what's important, as even though the shift in power might seem large, everything remains to be seen.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.



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