Economic activity strong statistically

Oct. 1, 2003
WHEN Eli Lustgarten appeared at The Work Truck Show in 2002, he subtitled his presentation, Cautiously Optimistic About a Return to Normal. Later in the

WHEN Eli Lustgarten appeared at The Work Truck Show in 2002, he subtitled his presentation, “Cautiously Optimistic About a Return to Normal.”

Later in the year, at the NTEA's Economic Outlook Conference, he subtitled it: “It's Even More Cautiously Optimistic.”

Exactly a year later, the picture had improved so much that he appeared at the conference and was calling it, “Can We Survive Until the Mid-Decade Boom?”

“Can we keep the economy going for the next year or so?” asked Lustgarten, managing director of H C Wainright & Co and a six-time member of the Wall Street Journal's All-Star Analyst poll. “If we do, we're looking at a mid-decade boom. And that's a big change from where we are today. But the mentality of the market is that the backdrop of economic activity is quite strong. It is exceptionally strong statistically. So even if you don't see it, you'll hear how strong the economy is.”

He said inventory typically is the biggest contributor to a recession. In a classic recession, residential construction, capital expenditures, and consumer expenditures also are down.

“This time around, we know that residential and consumer spending were not down — they were up,” he said. “That's why we've had such a mild recession.”

Strong second half

He said a surprisingly good second-quarter report has led to a unanimous view among economists that growth will turn out to be stronger in the second half of the year.

The good news in the second quarter: consumer spending was up 3.8%, capital spending was up 6.9%, government spending was up 8.2%, tech spending was up 16%, and defense spending was up 46%.

He said Gross Domestic Product growth of 3-4% is likely in the third and fourth quarters, compared with 2.25% in the first two quarters. He said that while most economists are estimating between 3 and 3.5%, over 4% is possible.

Tax cuts will help over the next four quarters, he said, adding more than $100 billion to disposable income.

He said that although much of Europe is statistically in recession, steps are being taken to help improve global growth in Europe, Latin America, and Asia, though the US likely is still the lead engine.

But Lustgarten also said caution signs are visible. His observations: Will higher interest rates de-rail the recovery? Mortgage refinancing surge will fade. Is consumer spending unusually vulnerable? The labor market shed jobs in July, with not much change in August. There is mixed data: temporary employment was up, but hours worked fell. Consumers are pessimistic about the job market.

In the lawn and garden segment, Lustgarten said surveys indicate that lawn care companies and landscapers are good vehicle customers because: 25% buy new exclusively and 23% lease; they are not necessarily seasonal purchasers, as 43.7% buy throughout the year; 65.5% replace their vehicles between four and eight years; and most have trailers (81% are the open style with real gates).