Recent surveys from KPMG and Barclays Bank suggest businesses in the USA and Britain believe that the economy will be on the road to recovery by the last quarter of 2010.
However, are the economic indicators telling the same story?
KPMG revealed the indicators each market sector is hoping for;
- Finance: Stabilized Real Estate Market, Improved employment, and Improved Consumer Confidence.
- Technology: Improved Business Confidence, Improved Consumer Confidence, and Improved Business Spending.
- Retail and Food and Beverage: Improved Consumer Spending, Improved Consumer Confidence, and Improved employment.
So is the recovery a statistical aberration, or does it have a solid economic foundation?
EMPLOYMENT
Good news we are told because the US lost only 247,000 jobs in July which is better than June. In other words unemployment dropped from 9.5 in June to 9.4% in July.However, that is up from 6.0% (5.8% seasonally adjusted) for July 2008!
Employment dropped across the board in July: Total nonfarm payroll fell 247,000, construction fell: 76,000. Manufacturing 52,000; Retail 27,000; Professional & Services down 38,000; Transportation and warehousing 22,000; financial 13,000; Healthcare 20,000.
6.7 million jobs have been lost which is close to the amount of job growth for the preceding 5 years. Remember, it took 4 ½ years to regain the job losses following the 2001 recession. In other words, even as business begins to improve there will be restructurings. Economic commentator John Maldin predicts suggests the employment decline will bottom out at over 10% in the middle of 2010 and cost a total of 8 million jobs. If his estimate is correct, to get back to the 4.5% unemployment of 2007, would require creating 17 million jobs in 5 years . That’s 12% annual growth for 5 years .
HOUSING
Growth in the housing market usually is occurs when there are few across the board job cuts and forecast low employment. There should be Long-term increased demand for second homes, vacation homes and senior housing by baby boomers, entry-level homes by immigrants, entry-level homes by second-generation Americans, stable interest rates and long term home-appreciation rates, relatively stable population changes and rising wealth for all age groups.
Do you see these conditions? No you don’t. The housing cycle is not bottoming out.
The Baby boomers are passing the magical age of 47.5, the age that statistically we spend the most. Although the baby boomers may feed the market for holiday homes in the next few years if economic futurist Harry Dent is correct.
After assessing the 7 factors that affect the housing market realestateconsulting.com gave the housing market prospects a D. up from D- in April (not a pass grade of C!) and expects the market to bottom out in summer 2010.
According to the housingpredictor.com, it has been predicted that 10 million homes will be forclosed through to 2012 as people find they cannot refinance. It is much cheaper for a bank to foreclose a mortgage than refinance. Foreclosures are now running about 6 times higher than just 4 years ago.
As there are too many houses for sale, (there was more than 10 months’ worth of houses were waiting to sell in April, according to the National Association of Realtors) Real Estate prices are not likely to increase in the next 2 to 4 quarters. Usually, when inflated house prices drop they usually fall below the median before returning to normality. However, the Housing in Crisis: When Will Metro Markets Recover? Study anticipates house prices to stabilize by the end of the year.
“By the end of this unprecedented downturn, house prices will have declined by double digits peak to trough in nearly 62% of the nation’s 381 metro areas. In about 10% of metro areas, price declines will exceed 30%” suggests the study.
Expect the high unemployment rate to continue reducing the number of families able to buy a home. People have been hit hard by the economy and have had to cut costs and not spend on a home. Many have a low credit rating, high debt, and not enough money to make a down payment on property. Even if they did, Banks have had to tighten their approval policies insisting on a high credit rating with low debt.
The other factor is fear.
Confidence
“Confidence will struggle to gain ground in the months to come, as consumer budgets remain stretched. Little wage income, prospects for reduced bonus payments, reduced access to credit, and no capital gains are all constraining consumers’ ability to meet their financial needs and recover from the sharp drops in wealth they have experienced. Many consumers are struggling to pay their debts. Supports are coming from reduced layoffs, equity market gains, and stimulus such as the Cash for Clunkers program, but that is proving inadequate to lift spirits so far. It will likely be some time before conditions turn enough for confidence to improve decisively. Key drivers of confidence include developments in the labor and housing markets and the path of energy and equity prices” states economy.com.
“Chief Executive magazine’s CEO Index, the nation’s only monthly CEO Index, dropped to 63 in July, after showing gradual improvement. All components of the index are down, with Employment Confidence taking the largest hit… Bottom of Form
“The Employment Confidence Index declined 25% with 57% of CEOs expecting continued decrease in employment next quarter. Over 95% rate the current employment environment as bad — the highest level for 2009. Less than 5% think employment conditions are normal and virtually no one (0.4%) thinks they are good” states the Bill King Report.
Yes we will recover – but the scars will remain for a while yet. Things may be settling down in 2010 as KPMG et al suggest. However, recovery is a slow process. Peoples private economic recoveries usually lag behind what the statistics reveal.
If economic patterns follow their historic trends, then we are in long term period of shakedown from which the new economic movers and shakers will emerge.
As Charles Sizemore of the of HSDent.com said “the recession may or may not be ending. But we are definitely NOT returning to the way things were, at least not any time soon.”
