Saturday, April 21, 2007

The Bull Argument

Below I express what appears to be the bear's main line of arguments. Here is how the bulls are looking at things.

While GDP growth is slowing, the elements causing the slowdown are contained. The housing slowdown had not severely impacted consumer spending. While personal consumption expenditures slowed in the second and third quarter of 2006 to 2.6% and 2.8% respectively, they accelerated to 4.2% in the 4th quarter.

The main reason for this increase is solid job growth leading to increased disposable income. According to the Bureau of Labor Statistics the US added 180,000 jobs in March and previous months were revised higher. These gains are adding to confidence and bolstering spending. According to the Bureau of Economic Analysis disposable income increased 1.06% in the 4th quarter.

The economy demonstrated it can take the shock of higher oil prices last summer, so the increase in gas prices at the pump won't slow spending this summer.