Today is last day of 2010. To make this review concise, I am not writing the popular topics that everybody knows, like disappointing unemployment rate or QE about which you can find articles everywhere. I am blogging here on the economic realities that happened in 2010 but have been neglected by most people and could have great impacts on where the economy is going in the future.
- There is no doubt that the U.S. economy has recovered to the level of 2007 based on the retail sale data. However, we should note this data reported is not inflation adjusted data. Factoring the inflation, the retail sale actually just returns to the level of middle 2008.
- We all know 2009 is a bad year. That makes the year over year comparison of 2010 GDP impressive, taking advantage of the lower 2009 data it compares with.
- Another bright point of 2010 is the increasing inventory buildup in the 2nd half of the year. But inventory driven economy can not last forever unless the consumer demands expand accordingly and sustainably. Any deceleration of the consumer demands growth will not bald well for the 2011 GDP growth, so is the stock market.
- Currently market not only reflects 4% GDP growth in Q4/2010 but also prices in a 4% GDP expansion in the next 6 months. Any deceleration from that growth could trigger a deep correction of the market in 2011. Looking forward, it is not the matter of whether it will happen but the matter of when the correction will start and how deep it will go.