Recovery V or Recovery W
by Hiland Doolittle
If you put 100 economists in the same room, would you get 100 different answers about the projected recovery from the world’s deepest recession? Apparently, the answer is yes.
The prestigious Blue Chip poll was released on Monday. 16% of the respondents thought the recovery was underway and that it would resemble the letter V. An equal number or respondents painted a different image, with the recovery taking the shape of an ominous W. The majority of respondents agreed the recovery would be long and sluggish at best.
Certain recovery symptoms are taking shape. The question is, “are they sustainable?” Typically, manufacturing is the leading indicator. Sharp declines in manufacturing signaled the arrival of the recession. There are now signs that manufacturing is on the mend.
There is skepticism about the sustainability of the manufacturing rally. The “cash for clunkers” program has definitely sparked recent auto re-employment gains. The $3 billion government sponsored spending spree has brought the consumer back to the auto market and fueled plant re-openings and production as well as sales in related businesses.
The Institute for Supply Management reported that July’s manufacturing improved by higher than expected activity. However, other than in the auto sector, the picture remained dim as non-auto manufacturers continued job cuts.
As the service sector accounts for 80% of non-farm payroll employment, unemployment numbers are bound to increase. Additionally, economists speculate that the increase in auto sales will reflect negatively in other areas of retail sales.
Walmart Flat
Equity markets reacted quickly to Walmart’s quarterly report. The world’s biggest retailer suffered from the weaker dollar as the value of surprisingly steady international sales was diminished. U.S. sales at stores that had been open at least 12 months fell by 1.2%. Analysts had expected a gain of 0.85%.
Net quarterly income was $3.44 billion and flat in year-over-year comparisons. Earnings rose to $0.88 per share, surpassing predictions of $0.85 per share. Walmart raised third quarter expectations to $0.82 per share from $0.78 per share. This news was well received in equity trading.
The 6% quarterly inventory reduction marked Walmart’s ninth consecutive quarterly inventory reduction. Margins continued to be better than expected. It is clear that the normally more extravagant American consumer is now entrenched in discount centers.
Early morning trading gains subsided when U.S. retail reports hit. Retail sales fell 0.1% as unemployment numbers unexpectedly turned negative.
Foreclosures Hit New Records
American households have endured a $12 trillion haircut since the recession began. Equity markets and diminishing housing markets are the main culprits. RealtyTrac released July’s housing numbers and the news is not good.
Foreclosures surged 7% over June numbers and are 32% higher than year-over-year foreclosures. An astounding 1 in every 355 households is now in the foreclosure cycle.
As state moratoriums expire and as unemployment continues to rise, the pressure continues to mount on the U.S. homeowner. California, Florida, Arizona and Nevada account for 57% of foreclosure filings. Meanwhile, states like Illinois, where filings jumped 35%, Kansas, Massachusetts, New Jersey, Michigan, Texas and Georgia reported more than expected filings.
Downturns in foreclosure filings have been swayed by new moratoriums and protections in several states. Indications are that these programs are ineffective.
Notices of default have been issued to 2.3 million American households in the first seven months of 2009. 360,000 new households received foreclosure notices in July.
What is Ahead?
When 774 economists were polled, there was wider than usual uncertainty about the path of the recovery and the direction of consumer spending in then U.S. The group showed a strong belief that consumer spending would decrease by 0.9% in the remained of 2009. The bulls foresee an increase in consumer spending of 2.3%.
Americans are hesitant to spend and are looking hard at bang for the buck outlets. This trend is very evident in the success of the cash for clunkers program. Yet in a Commerce Department release on Thursday, retail sales fell 0.1% in July after posting a 0.5% gain in June. When auto sales and sales of auto parts were removed from the report, retail sales declined 0.6%. Analysts had projected a 0.5% July gain.
The Labor Department added more bad news to the recovery equation on Thursday as 4000 more Americans filed first time claims. The Labor Department report and the Commerce Department repost served to neutralize the optimism generated by Walmart.
While the equity rally is impressively bullish, it is a nervous rally at best. At some point, the recovery needs a substantive base.
Tags: 2009 Stimulus Package, Deflation, depression, dollar, Economy, European Central Bank, foreclosures, GDP, housing, interest rates, mortgage, recession, Retail Sales, stimulus, Stimulus Plan, unemployment, US Dollar, US NonFarm Payrolls, US Retail Sales, US Unemployment
About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
