Last week, I encouraged you to embrace the possibility that the U.S. economy might actually be gaining momentum. I know. It's not exactly a popular stance. But lo and behold, in the short time that's passed since then, even more evidence emerged in support of such a contrarian viewpoint. Let me share it with you - and explain why it matters. Then, I'm singling out the two earnings reports to focus on this week. Each promises to provide critical intelligence regarding how much of a positive surprise we can expect for U.S. GDP growth in 2013.
Without further ado…
Out With the Old
I previously predicted that the economy is overdue for a boost, as consumers and businesses begin replacing old "stuff" like cars, appliances, heavy equipment and furniture. Guess what? The latest data suggests that the replacement cycle is upon us.
On Monday, the Commerce Department reported that durable goods orders increased 4.6%. Once again, economists' forecasts look sillier than weathermen's. (The median forecast of 76 economists surveyed by Bloomberg called for a mere 2% increase.) Lest you think the monthly uptick is an anomaly, the increase capped the first four-month gain in durable goods since 1992. So it's legit.
Or as Barclays PLC economist, Peter Newland, told Bloomberg, demand is "back on track." I'd say so. And the more it picks up, the more likely that U.S. GDP is going to come in higher than expected. (Remember, economists only expect 2% growth this year.)
No Lack of Earnings Surprises, Either
As you know, the earnings reporting season is in full swing. And the latest stats confirm that an uptick in demand is materializing across multiple sectors, not just durable goods. Case in point: The earnings "beat rate" (the percentage of companies topping analysts' earnings estimates) increased from 59% to 63.9% in the last week. Even better, the revenue "beat rate" (the percentage of companies topping analysts' sales estimates) now rests at 60.8%. That's a country mile higher than last quarter's revenue beat rate of 48.2%, and the surest sign that demand is picking up across the board.
Keep An Eye on Pickups and Tablets
If the trend of better-than-expected reports continues, I bet you dollars to donuts that economists will be revising their GDP growth forecasts to the upside.
As I told you last week, small business owners account for the majority of pickup truck purchases. And small businesses are an undeniable driver of U.S. economic growth. So any further signs of strength from Ford bode well for the economy. Meanwhile, Amazon's status as the King of Online Retail makes its results a strong proxy for consumer spending habits, which is another key driver of economic growth.
Bottom line: Analysts and economists remain too downbeat on the economy. That's no longer just a contrarian hunch. The latest data proves it, as more and more reports keep coming in well ahead of expectations.
I recommend tracking the situation in the coming weeks. Why? Because stronger GDP growth only increases the prospects for stock prices.