Look Out For This Positive GDP Surprise

The father of value investing, Benjamin Graham, warns us, “It requires considerable willpower to keep from following the herd.”

In other words, it’s hard to be a contrarian. Even when we know that receiving outsized profits is the reward for doing so.

So what’s standing in our way? The same thing that’s keeping us from shedding those pounds we packed on over the holidays: discipline.

Thinking like a contrarian isn’t something that occurs naturally. It requires considerable practice to become second nature.

Or as Humphrey B. Neill says, “The art of contrary thinking consists in training your mind to ruminate in directions opposite to general public opinions. It is merely a matter of getting into the habit of looking on both sides of all questions.”

Well, you’re in luck. Because today I’m launching another semi-regular column, Think Contrarian, in which I’m going to routinely encourage you to flex your contrarian muscles.

Our first topic of discussion? The depressingly low projections for U.S. economic growth.

So let’s get to it…

Say It Isn’t So, Richard!
Last Friday, Richard Fisher, President of the Federal Reserve Bank of Dallas, told Bloomberg Radio, “We could have GDP growth of 3% this year [in the United States].”

What’s the big deal about a prediction for 3% growth? Simple. It flies in the face of prevailing wisdom.

Everyone and their mother know the U.S. economy is sucking wind. And it has been ever since the Great Recession hit.

Few (if any) people expect a boost in 2013. The average economist surveyed by Bloomberg expects U.S. GDP growth of only 2% this year.

Yet here comes Fed President Fisher suggesting GDP growth could be 50% stronger.

Nonsense? Or could he possibly be smarter than your average economist – or, for that matter, the 83 economists surveyed by Bloomberg?

If we want to be true contrarians, we at least have to consider the possibility.

With that in mind, here are three pieces of evidence – including two infrequently cited, yet meaningful, indicators – that the U.S. economy might, indeed, be poised for a stronger-than-expected rebound.

~Exhibit A: Pickup truck sales are, well… picking up!
Forget headline-grabbing economic indicators like the Fed’s Beige Book or the ISM Manufacturing Index. As Peter Lynch noted, we can glean insight from our day-to-day routines. That is, as long as we’re observant. And lately, you might have noticed there’s been a preponderance of Ford (F) pickups on the road.

The latest data from Ford confirms a rebound is, in fact, underway. Last year, Ford sold 10% more F-Series trucks than in 2011, marking the third straight year of annual increases.

And since small business owners, particularly in construction-related industries, historically account for a large portion of pickup sales, the continued increases bode well for the U.S. economy.

~Exhibit B: Out with the (really) old stuff, in with the new.
Not all consumer goods are like luggage. They don’t last forever. They eventually break down and need to be replaced. And more and more of our “stuff” is bumping up against this inevitability. As BusinessWeek’s David Wilson notes, “The average age of cars, appliances, and furniture owned by U.S. households is at its highest in almost half a century.”

Here’s the key: As we begin replacing our really old stuff, it’s certain to pump up the economy. Indeed, Barry Ritholtz of Fusion Analytics Investment Partners, LLC suggests “well over 50%” of the replacement activity will benefit the U.S. economy.

~Exhibit C: (Surprising) strength on the sales front.
Don’t worry… I’m not just looking at esoteric indicators. The latest corporate results also support the possibility of an accelerating economy. Consider: Although it’s still early in earnings reporting season, 60.2% of companies put up better-than-expected revenue figures. As I noted, last quarter the revenue “beat rate” came in at an abysmal 48.2% – the lowest level since the bull market began.

Long story short, since revenue provides a strong indication of demand, the uptick points to the possibility of a broad-based acceleration. And that’s nothing but a positive for the U.S. economy.

Bottom line: A boost in economic growth in the United States isn’t as far-fetched as we might think. At the very least, the data suggests that an uptick in demand is in the works for housing-related and automotive companies. Invest accordingly.

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