Economy in Full Swing (Watch Your Head)
Volatility isn't just a Wall Street phenomenon. It is hitting Main Street, too.</br></br>So far, incoming September economic reports have been surprisingly firm. Auto sales rebounded to their highest level since April. Chain-store sales posted year-on-year growth of 5.5%. The economy added 103,000 jobs, and manufacturing sentiment improved a bit. On Friday, Commerce Department figures are expected to show a strong 0.8% monthly increase in retail and food-service sales, while consumer sentiment may show some brightening of attitudes as well.</br></br>What? If this feels like a 180-degree turn from August, it basically is. It would be one thing if this were a special case, or a broad turning point. But these jerky swings have become the norm. Consider what has happened so far this year: Real gross domestic product shrank in January and February, according to tracking firm Macroeconomic Advisers. Then it surged more than 1% in March. It contracted again in May and June -- only to jump more than 1% again in July.</br></br>This isn't typical. Since 1992, monthly GDP has fallen about a third of the time when the economy hasn't been in recession. This year, even assuming a small gain in August, monthly GDP has fallen about half the time. It is even less common to see GDP growth above 1% in any given month; that usually happens only about once a year. In the first half of 2011 alone, it happened twice.</br></br>No surprise, then, that stocks have been swinging wildly. After sinking to just shy of bear-market territory, the S&P 500 jumped nearly 8% in the eight trading sessions through Thursday. That rally is predicated in part on figures showing the U.S. is likely to avoid recession for the rest of the year. At least, in traditional terms. But RBC Capital Markets economist Tom Porcelli cautions the economy remains vulnerable to growth scares he calls "flash recessions."