Where’s That Pickup In Business Spending? The Economy's In Trouble Without It

Includes: CDWC, GOOG, IBM, SPY
by: William Trent, CFA

We have discussed previously how the Goldilox scenario many bulls envision relies in part on business spending picking up the slack from any slowdown in consumer spending. This outlook has been the refrain for the last several years, and fortunately consumers have shown a willingness to continue spending more than they earn because the business spending revival remains nowhere to be seen.

Now Reuters reports that computer seller CDW Corp. (CDWC) shares fell on a missed sales forecast.

Computer seller CDW Corp. (CDWC) on Wednesday reported lower-than-expected third-quarter revenue on a decline in sales to business customers, sending its shares down nearly 3 percent.The Web-based retailer, which targets businesses and government agencies, said net sales rose 4.1 percent to $1.74 billion. That wasn’t enough to satisfy analysts, whose average forecast was $1.76 billion, according to Reuters Estimates.

Corporate sales fell 2.5 percent to $1.09 billion.

When added to IBM’s (NYSE:IBM) mediocre overall growth of 5% reported last night, it seems pretty clear that business spending isn’t picking up. Unfortunately, the consumer finally looks to be running out of steam. Motorola’s (MOT) sales warning shows that cell phone purchases may be tailing off. Ad spending (strongly tied to consumer spending) is weak almost across the board. The job market and housing markets are clearly slowing.

Right now it is government spending that is keeping the economy growing as a whole, as evidenced both by CDW’s report and the recent durable goods orders. The problem is, very few people think government spending is the most efficient way to generate healthy long-term growth.

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