Statistical Indicators

What the Smart Guys Are Saying...

Posted on Wednesday, June 23, 2010

GDP: A relapse into recession in not likely. GDP growth this year is about 3.5% and will be about the same next year.

Employment: Inventories are lean so businesses will be spending there as well as on equipment then have been putting off. Continued federal stimulus will help, but that tapers off in 2011. Eventually employers will have to add back to the cut backs of the past few years. Until then real hourly wages have increased 3.5% since August 2007. Inflation will likely remain the same. Millions are still out of work. The 980K net increase so far this year does little to help the 8.4 million who lost their jobs during 2008 and 2009. It will take until 2012 to recover lost jobs. And the jobless rate wont be a normal 5.5 untile 2014 as new folks looking for jobs enter the market.

Rates: Interest rates are at bottom.

Confidence: Consumer confidence is still an issue. The S&P 500 is up about 60% from early 2009. Most importantly American household net worth is up $3.5 trillion from last year and $5.8 trillion from the recession low.

So why does everyone still feel so bad? One reason may be lots of idle resources. Vacant real estate, etc. As of mid 2009 just over 2/3 of US industrial capacity was being used. Today its 74%, about 5% less than a normal thriving economy, far below the pre crisis rate. Service industries in particular have plenty of spare capacity.

Credit is still tight and especially impacting small busness which accounts for half the US jobs. Credit is not expected to loosen until at least the end of 2011, I'd guess longer.

Housing prices can make or break the feeling of wealth too and willingness to spend. Housing and industries that serve it normally are 7% of the economy. It will take at least a decade to regain prerecession levels of home sonstruction and sales. The same goes for home prices especially in hard hit areas. A return to prebubble levels will also take years. 650k housing starts are expected this year. Another 900K next year. That’s a long way from 1.6 million in 2001. New home sales may top 500K next year. Maybe they’ll hit 800K a normal high in 2014 or 15. Existing homes sales is a little less negative. 5.3 million this year and 5.5 million next yeatr, near prebubble levels.

Exports will return to prerecession levels. Imports will climb less quickly. It will be years before bsunesses need more space meaning bad news for CRE. Offices vacancies will still climb higher. Hotels and restaurants lost 18* in revnue per room from 2007 to 2009.

Small and mid size bansk have another thought few years ot go. In good years they charge off about 0.6%. This year they’ll charge off anoehtr 3%. Big banks seem better than ever.


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