While we had been seeing earnings figures as the primary influence on the markets for the past few weeks, the economy drove the market this week. The different data that came in had opposing effects.  The two most important reports were Thursday’s GDP numbers, coming in at an unexpectedly high 3.5% growth, and Friday’s consumer spending report, in which spending dropped by the most it has in nine months.  The drop in spending was widely attributed to the cessation of the “cash for clunkers” program. Durable goods orders were up 1%, in line with expectations.

On Wednesday, commentators were quick to yell “correction!” when the markets dropped.  On Thursday, they backpedaled and resumed a less alarmist route.  On Friday, the correction talk came back.   While we can’t say for sure if there is a correction brewing or not, we still remain confident in the markets in general.  We expect the year to end with the markets above current levels, at the least.

To quantify the week, The Dow was down 2.60%, the S&P 4.01%, and the NASDAQ 5.08%.

Next week is a very heavy week for economic data.  Most significant will be ISM manufacturing data, productivity numbers, unemployment figures, automobile sales, and the pending home sales index.  The combination of these and other figures next week should help to paint a clearer picture of our position in the recovery.