Last week: The news was quite bad this week. Consumer sentiment remains in the doldrums. Consumer spending, especially on services, remains soft. Home buying is also very weak. On the supply side of the economy, the ordering rate is low – a signal that business investment isn’t likely to remain robust. Strong investment in structures and equipment was the big news in the GDP report for the second quarter. Everything combined suggests an economy starting off the second half of the year with little forward momentum. The Conference Board Leading Economic Index® for the U.S. sends the same signal.

THE SITUATION ABROAD

Retail sales rose 3.2 percent in Japan over the past 12 months. The consumer market is less robust in both the Euro-zone and in North America. This is certainly not good news for those economies trying to export their way to a stronger overall pace of economic activity and job growth. As the first anniversary of the end of recession approaches, digging out remains a difficult struggle across the globe.

FACT OF THE WEEK

2.8 percent. In one day this past week, wheat futures jumped that much over concerns about production — given persistent drought and heat in Eastern Europe this summer. Meanwhile, there have been record high temperatures in North America and extreme cold in the west of South America. Grain stockpiles across the globe are plentiful. Nevertheless, these weather anomalies could well limit crop production and lead to higher food prices later in the second half of 2010.

QUESTION OF THE WEEK

If the economy is growing by 2.4 percent annualized in the second quarter, why isn’t the stock market increasing by at least 2.4 percent?

Investors are buying shares of a company, purchasing a small piece of ownership. An investor values that purchase on the basis of future, not current, profits. But the real disconnect between the stock market and the economy has to do with coverage. The GDP for the U.S. is the sum of all the goods and services produced in that time period in the United States. Many of today’s companies operate across the globe. Changes in demand or prices in the U.S. impact only a part of the global operations and profits of that company, and therefore have only a partial impact on its stock price.