June 19, 2009 Edition, Volume III
Inside Signature Update
- It’s Obama’s Economy Now
- Mixed News from the Housing Market
It’s Obama’s Economy Now
One of the difficult byproducts of the Obama administration’s aggressive approach to curtailing the impact of the recent recession is that some 52% of voters now see the current economic malaise as Obama’s responsibility; with 38% expressing disapproval of his handling of the economy. While there is no evidence that these same voters have forgotten the root causes of the housing/credit crisis and recession, assuming they understood it in the first place, they are now willing to allow President Obama and his advisors to share in the blame. Rightly so, given the extraordinary measures taken and the administration’s continual push to spend, exert capital control and regulate its way to a solution.
On one of the Sunday morning news programs Vice President Biden admitted that the administration had not gotten the $800 billion stimulus plan right; a sobering realization coming from one charged with seeing to it that the plan is carried out and monitoring its benefit to the nation. Though he repeatedly attempted to point out the administration’s saving of some 150,000 jobs, a number that is virtually impossible to substantiate, he readily agreed that the economy is headed towards recovery in spite of the fact that only a small portion of the stimulus dollars have made their way into the economy.
Business leaders and consumers alike have expressed ongoing concern over a potentially threatening increase in the rate of inflation due to expanded monetary policy from the Federal Reserve and US Treasury, and extraordinary budget deficits being forwarded by the current administration and US Congress. Recent talk of a trillion dollars or more that may be committed to an overhaul of the medical system have only made matters worse. But just what must occur in order for inflation to rear its head and how likely is it that there are strategies the Federal Reserve can employ to moderate its effects?
The May Consumer Price Index (CPI) Report released earlier this week extended the run of lower pricing for consumer goods with a 12 month decrease of 1.3%. Though May posted a month-over-month increase in consumer prices of .2%, the year-over-year trend has been a steady decrease, largely due to same period declines in energy costs. Hardly a precursor to spiraling inflation.
Conventional wisdom would suggest that expanded monetary supply must lead to inflation, but it may not be that clear cut. Last summer, as fuel prices were skyrocketing, the risk of inflation was one of the most pressing on the minds of most consumers and policy makers. At the time, I argued that inflation was unlikely in the face of rising unemployment and that a far more likely scenario to be played out would be a decrease in demand sufficient to drive commodity prices lower rather than extend their movement in to a net inflation gain.
In most cases, real inflation can only exist in the face of increased demand, typically driven as discretionary, or excess income works its way through the market. Increasing levels of unemployment most often decrease the flow of funds and make inflated pricing almost impossible to attain, well enough maintain. Higher interest rates have the same effect as they absorb excess income; keeping prices lower. As we’ve worked our way through the recession and now recognize the emergence of modest recovery trends, we continue to deal with the lingering effect of unemployment. In addition, interest rates have begun to rise in spite of Fed efforts to keep them at extremely low levels; Treasury auctions have revealed an investor mandate for higher rates on government securities; a trend which has already begun to work its way through the rest of the market’s capital and credit structure.
Supposing that this trend continues, and that future gains in the employment market may be balanced by increasing interest rates in absorbing available income, whether supported by federal policy or market activity, it will be difficult for inflation to take hold. If the Federal Reserve sees inflation as a likely impediment to economic stability, they will step in and tighten the money supply to curb its pressures – it is their most important and enduring mandate.
Finally, we have the consistent reality that the more something is discussed at the office water cooler, expounded on by extreme theorists, or presented as a certainty by popular pundits, the less likely it is to become fact. For all of these reasons, and more, we’re not advocating extreme measures to defend ourselves against the ravages of inflation; rather, we continue to call for reason, prudence and cautious optimism as we look towards a full scale economic recovery in 2010. Mr. Obama will be as fortunate to own that phenomenon as he is unfortunate to own the current state of affairs.
Mixed News from the Housing Market
This week’s reports from the housing market, though overtly positive for the residential construction industry, offer a mixed bag for the residential real estate market as a whole. New construction permits increased 4% in May over April 2009, though still behind May 2008 by 47%, and new housing starts increased 17% to 532,000 units, though still lagging May 2008 by 45%. Without question, this data reflects some much needed relief for those companies and individuals who depend on residential construction for their support, some 4,000,000 Americans as of January 2008, but it also spells an elongation of one of the continuing problems in the housing market: excess inventory.
The increase in residential permits and construction starts is a direct response to lower mortgage rates and pent up demand for custom homes or ‘consumer preferables’. Though rates have begun to trend higher in recent weeks and lender qualification policies remain stringent, buyers have slowly begun their return to the market. Regardless of inventory levels, interest rates, and lending policies, a certain portion of the population remains interested in newly constructed, customized housing product, the demand for which will always push beyond constraints.
Aside from the cost and availability of credit, one of the more lasting problems plaguing the housing market is the excess inventory brought about by speculation and over building. In the long term, one of the healthier scenarios for real estate valuations would be a continued decrease in new housing permits and starts. While this would continue to disadvantage home builders and their employees, it would allow for a more timely decline in inventory levels and help stabilize residential real estate prices.
This explains why the US stock markets offered little response to what many saw as good news. It is good news, of a sort, but is offset by nagging concerns over how long it may take for residential price stability to return to the markets.
Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management and CEO of Signature Management, LLC
Wednesday, June 24, 2009
Wednesday, June 10, 2009
An Economic Reset - continued 6-10-2009
June 10, 2009 Edition, Volume III
Inside Signature Update
- The High Cost of High Living
- A Change in Global Currency?
The High Cost of High Living
I recently had an opportunity to address a group of academics regarding urban trends in the US marketplace, including issues surrounding urban sprawl and the ‘New Urbanism’. During the open question and answer period, an interesting claim was made by one of the participants - a claim which represented a point of view I’ve now heard several times in the last few months. The question posed had to do with changes in the American standard of living and how, or if, we may ever return to the high standard of living experienced in the US through the 1950’s to the 1980’s.
What interested me most was the impression that our standard of living has declined over the last 20-30 years. The participants reflected a perceived decrease in the American standard of living, presented concerns that the ‘good old days’ may never return, and expressed their frustration that we’ve entered into a prolonged period of generational standard of living decreases rather than the increases experienced by prior generations. Nothing could be further from the truth.
Over the past decades, we’ve seen a standard of living increase in this country, and the world, of unprecedented proportions. I grew up in the 1960’s and 1970’s in a family of five children, in a middle-class neighborhood in the San Francisco Bay Area. Though ours may have been a lower-priced neighborhood than some in the area, it was a far cry from others we frequented. My father worked hard and earned a good salary; my mother was an at-home-Mom; we lived in a modest four bedroom home in the suburbs with a two-car garage, Dad had a small boat and Mom watched soap operas before finishing her housework for the day and making dinner. Like most families, ours struggled at times; but we knew we were part of a great collective, and our family life was little different from most we knew.
My Mother made lunch for each of us before we went to school or work and could often be found sewing dresses for my sisters. Dad did yard work with the boys, and as often as not worked a few hours on Saturday. We had one television set, a couple of radios, enjoyed a few vacations to the beach, went camping now and then, and many Saturdays were spent at the movies. Excepting a few idiosyncrasies we won’t discuss here, our family was very representative of a growing majority of middle-class families in our country. Families of that era rarely ate out, didn’t spend hundreds (or perhaps thousands) each month on cell phones, internet, satellite and cable connections, and HELOC payments. Households had few credit cards, saved a little each month and only refinanced their homes if absolutely necessary, as often as not to help pay for college or weddings.
The vast majority of families lived well on one income, and therein lies the basis for the concern many have recently expressed. It has become increasingly difficult to support many families on two incomes, well enough one. Retirement lifestyles are in jeopardy unless 401(k), IRA and pension savings are in the high six figures. And consumer debt levels threaten family solvency as never before. These are obvious issues in our society and economy. Less obvious is that our expectations for convenience, comfort, entertainment, and recreation have soared!
Today’s households of most any type have microwave ovens, multiple television sets, several telephones and cell phones, two, three and four cars with garages to match, two or more computers, game consoles, and home theater systems, not to mention ATV’s, boats, timeshare units, and a host of other ‘necessary’ luxuries. The average household eats together 2.1 times per week, and the average adult consumes 5.3 restaurant or fast food meals weekly. Instead of very nice homes of 1,500 - 2,000 square feet with a two-car garage, we now require luxury homes of 2,500 – 4,000 or more, sporting a three-car garage and RV pad.
Lifestyle improvements of prior generations typically followed productivity increases in the marketplace, resulting in higher wages per worker. The generational improvements, though meaningful, were modest by comparison to the increases of the last twenty plus years. The expanded lifestyle expectations to which we cater today are funded from a combination of continued productivity gains, the insertion of additional household members in the workplace, and mountains of debt.
Additionally, the costs imposed on society for our increased lifestyle demands are difficult to enumerate. As we consider the cost of the added stresses on households and marriages; the costs associated with generations of latch-key children raised with less parental involvement, including adolescent crime, substance abuse, lower levels of educational achievement; and the impact of an overly entertained society at the expense of more healthy alternative activities, both physical and emotional, we begin to see the enormity of the problems our choices may be creating.
To the extent that we associate less beneficial utility with today’s standard of living, it is not because we have been forced to settle for less; rather, it is expressly due to the need to face the consequences of those choices we’ve made in pursuit of more, much more.
Following the theme of an economic reset, we see that the average household has recently increased personal savings by more than 5% and has shifted to a more moderate consumption level. Greater emphasis is being placed on prudence than opulence, and excess has become a ‘hiss and a byword’ rather than something to which one aspires. This may be a temporary result of the recession and lower employment levels, or perhaps it is a return to the ‘good old days’ as many have longed for but with a very different focus than most might have expected.
The American standard of living has gone from good to great to opulent, and while the pendulum is swinging back to correct for excessive levels of spending, our lifestyle continues to outpace the expectations of the economists and social scientists of decades past. As the domestic savings rate has shifted back to the positive, a small but important part of the consumer’s dollar has migrated out of the retail economy and into banks and long-term investments, exactly where more of it has belonged. Soon, as households have a more appropriate level of savings, they will begin to spend more freely, but in the meantime we’re living through an economic reset that includes making adjustments back to levels of consumption and expectations that most societies would still consider luxurious.
Will future generations expect to exceed the standard of living of those who came before? Certainly, but perhaps a realization will creep in allowing for lifestyle improvements absent excessive consumption and debt. We absolutely need to learn to be happier with that which is honestly and prudently ours rather than continually pining away for more at any cost.
A Change in Global Currency?
As the US dollar has given ground to other currencies and the US Treasury has taken to extraordinary levels of debt offerings, the discussion of currency domination has risen to new levels. Media reports of Chinese, Russian, and various lesser sovereigns’ interest in a new global currency, one that would replace the US dollar, have risen to new levels. As often is the case, the debate has become more of a media event than a functional issue on the international stage.
Though the US dollar’s decline, the national debt’s increase, and lower US GDP and employment figures are very real, the US economy remains the strongest and most resilient around the globe. The call for a new international currency feeds directly into the imaginations of media outlets, conspiracy theorists, and ‘new world order’ protagonists, but falls short of a credible debate. Even the BRIC nations (Brazil, Russia, India, and China), which economies have shown amazing growth, continue to deal with domestic difficulties rendering their abilities to host an international currency completely out of the question.
Consider China, far and away the strongest competitor for a new international currency, a nation of extraordinary natural and cultural resources, yet burdened with a majority class existing well below their own country’s established poverty levels. China’s middle and upper classes, estimated at over 450,000,000 now exceeds the entire US population (approximately 307,000,000) but their GDP, estimated at $3.5 trillion in 2008, pales by comparison to that of the US at $14.3 trillion. Likewise, the Chinese poverty class of some 900,000,000 citizens has yet to benefit by China’s growth, and they’re beginning to demand a level of service and support that some suggest may stifle growth.
The questions to be answered regarding the Chinese economy far outweigh the available answers. Will the massive poverty class suffocate the efforts of the minority upper and middle classes, or will the lower poverty class join the middle and upper class? Will the Chinese government put up with the middle class growing to a point that it could become the majority; and if so, will that middle class allow central planning to control their lives? The list goes on.
The Chinese are not well known for relinquishing control, and the world has been amazed that they’ve come so far so fast. Have they been able to avoid social unrest and conflict simply because the government still has a tight grip on the majority of the citizens? Most Chinese nationals who’ve come to the US for education are not interested in returning to their homeland though they long for the cultural and familial system they left behind.
Can China innovate itself to global dominance? Not if central planning continues to run the show, and almost certainly not in our lifetimes. Other nations calling for a change in the dominant currency are not only insignificant when compared to China, but offer no relevant options for world trade. The EU is inconsequential and offers no threat – their economy is imploding as a byproduct of a birthrate that simply will not sustain the culture, and the rise of immigrants in those countries will ultimately have a destabilizing impact. Great Britain appears to be the possible exception to this but has accepted its role as America’s older, though economically inferior, cousin. Russia makes noise in the international arena; but in raw terms, they’re all bark and smelly breath. Brazil could someday become a significant player; they’ve got the resources and population, and their societal and political reforms of the last thirty years are impressive, but they’ve simply been unable to avoid patterns of corruption that strangle their potential time and again.
Nothing in the Middle East has the ability to rival the US or the BRIC economies; and as long as oil remains under $100 per barrel, the oil economies will rattle their sabers and repeatedly stab each other in the backs. If in the next 30-50 years US technological innovation substantially reduces our dependence on foreign oil, the economic gap between these economies and those of greater international relevance will widen once again. Consider the outcome as formerly dependent countries, including the US, tell the OPEC nations to ‘take a hike’ - the destabilizing affect may be impossible for them to overcome. This possibility has not eluded various Middle Eastern governments, and as a result, the Middle East’s second most important export into Europe and the Americas has become their people. I work closely with a variety of well respected professionals from Turkey, Iran, Iraq, India, and Pakistan, in addition to those from other Asian nations, and few of them intend to return to their home country. It’s a telling commentary when a country’s own citizens, many of whom are engineers, economists, and environmental and bio-technologists are less interested in returning to their roots than they are in adopting western culture.
I’ll place my bet on the US and our currency. That may be part optimism but it’s an equal measure of pragmatism and the one sure bet in the domestic and international markets.
Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management and CEO of Signature Management, LLC
Tuesday, June 2, 2009
Issues and Opportunities 6-1-2009
June 1, 2009 Edition, Volume III
Inside Signature Update
- Thanks GM… more than just another auto maker
- Economic Data Supports Improving Trends
- A Case for American Manufacturing
"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it."
~~~~ Dr. Adrian Rogers, 1931
Thanks GM… more than just another auto maker
I held off publishing this week’s issue of Signature Update until after the Obama administration and General Motors announced GM’s filing for bankruptcy. Though I suggested well over a year ago that this outcome was inescapable, we’ve now sadly observed many months of indecision and posturing, culminating in an historic event few ever thought we’d live to see. GM’s entry into the bankruptcy courts marks the end of an era in US manufacturing. It’s not that automobile manufacturing won’t continue in the US - it might even become healthier than in recent decades – but the venerable US automotive giant, once the largest employer on planet Earth, will likely never regain its position of automotive dominance. The jingle, ‘… hot dogs, apple pie, and Chevrolet’ will fade into memory as the old GM is reengineered and brought back to life as a shadow of its former self.
Many of you know I’m a long time corvette-aholic, proudly avoiding cure or treatment, and more recently have become a proud owner of an iconic symbol of American Muscle; a 1957 Chevy. My fear, and that of many other middle-aged baby boomers, is that the new GM will be forced to produce cars based on political mandate rather than consumer appetite. Already, GM has been forced to scrap plans for the innovative Volt and ordered to introduce a fuel and cost efficient small car for the masses, one that meets CAFÉ standards, if not consumer preferences. Unfortunately for GM and it’s new owners – that would be us, the US taxpayer - the masses in America vote with their wallets and consistently express a preference for larger cars and SUV’s, fuel efficient or otherwise, or cars like the Volt, on the cutting edge of innovation and technology.
No one wins in the latest saga of GM. As with Chrysler, the UAW (United Auto Workers) fares better than other non-government debt and equity holders, but that’s a matter of degree. Ford, the lone independent among the major US auto manufacturers (Henry Ford, Sr. would be so proud) and seemingly holding a competitive advantage over its government held peers, stands to face stringent competitive disadvantages as administration and legislative actions will undoubtedly show preference to the ‘people’s’ auto manufacturing concerns. Consider the financing terms and tax incentives potentially available to GM buyers that would be difficult to offer to buyers of Ford products. At the same time, Ford may rise in dominance if GM and Chrysler’s engineering and innovation directives become the purview of legislative or administration gamesmanship. Only time will tell.
Regardless, I’ll never forget sitting in my brother’s two toned, metal flake 1956 Chevy two door, going through the gears and playing the radio, while he served in the armed forces during the Vietnam conflict, and wishing I could someday have a car that cool! I was 12 or 13 years old at the time, and the car never moved from its parking place in front of our home, honestly, but I traveled the country in that car. Thanks GM… and thanks to you too, Johnny.
Economic Data Supports Improving Trends
1st Quarter GDP was revised at the end of May reflecting a .4% improvement from the 6.1% decline announced last month; an adjusted rate of 5.7%. While this may not seem like a meaningful improvement, in all reality it is very important. The markets are looking for confirmation that many of the early signs of economic improvement are more than faint hopes and the adjustment of 1st Quarter GDP to a number more in line with economists’ expectations couldn’t have come at a better time.
The latest ISM (Institute of Supply Management) survey reported that most supply managers are observing real growth in the economy. Likewise, durable goods orders increased for the third straight month by 2.1% for March, 1.9% for April, and nearly 3% for May (projected). National Economic Trends, the St. Louis Federal Reserve’s publication of the latest economic data released this afternoon, provided evidence that most sectors of the economy have actually began to see gains rather than simply revealing slowing declines as in earlier releases.
The Conference Board Consumer Confidence Index™, which had improved considerably in April, posted another large gain in May. The Index now stands at 54.9 (1985=100), up from 40.8 in April. The Present Situation Index increased to 28.9 from 25.5 last month. The Expectations Index rose to 72.3 from 51.0 in April.
The change (increase) in unemployment remained steady for the 6th consecutive week as jobless claims continue to mount, but at a consistent pace rather than the previously escalating rate. The pace of jobless claims had been climbing over the prior months and the emerging pattern offers hope that we may be near the height of the unemployment curve. Jobless rates may still increase in coming weeks, perhaps even months, but the current data supports unemployment rates topping out between 9% and 9 ½% by the end of the year. Nonetheless, employment gains may elude the labor markets until early 2010, putting continued pressure on both the housing and retail markets.
April new home sales increased .3% from March 2009 (34% behind April 2008) and existing home sales increased by 2.9% from March 2009 to April 2009. Small, though important gains were seen in most markets as residential real estate inventories fell to 10.1 months nationally. While buyers are still bargain hunting, real estate pricing appears to still be suffering from lower-than-normal loan approval rates, a signal that the credit markets, though substantially improved from late 2008, are operating at less than optimal levels.
Taken separately, these improvements may appear to be no more than insignificant anomalies in an otherwise struggling economy, but together they show clear and coordinated signs that the economy is slowly improving. As credit markets continue to heal and return to efficient, if not irrational, levels of operation, the lynch pin of our economy, housing, will right itself as consumer demand pushes forward.
A Case for American Manufacturing
The decline of GM and other major US manufacturing concerns along side continued increases in unemployment puts a fine point on the need for export-oriented manufacturing operations in the US market. We can all understand the economic efficiency of allowing manufacturing to take place in lower cost labor markets, and we can easily point towards the higher paid service and technology sector jobs that have replaced many manufacturing jobs, but what we may have forgotten is that a US job creating product for export creates more than one job in the domestic market. In general, one job in the US marketplace, in an efficiently ran company creating market surpluses and producing export product, creates one or more other jobs in supporting the local economy.
As we’ve now seen through famously bloated union contracts and the excess wages and benefits they demanded, the problem in US manufacturing has never been the American worker. Rather, it has been the expectations forced on those workers by a media driven economy, fueled by promises of buy now-pay later, a ‘you can have it all’ mentality, and social excesses never before tolerated in respectable society.
As our global economy continues through this ‘reset’ we have an opportunity to create and innovate at such a level that it can spin off hundreds of thousands, if not millions, of export-oriented jobs to support the efforts of innovators on the cutting edge of energy and technology development. These jobs can produce goods and services for which an energy hungry world will crave and pay for. Just as we became the world leader in technological innovation to support the information age, we can become the leaders in clean energy technologies, health care products, as well as financial services, engineering and education.
We can easily make the case that US workers, unleashed to create and build the next wave of energy efficient power plants, technologically sophisticated and fuel efficient transportation systems, and superior manufacturing processes can and ought to be the backbone of the global economy as we venture into and through the remainder of the 2000’s and beyond.
Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management and CEO of Signature Management, LLC
Inside Signature Update
- Thanks GM… more than just another auto maker
- Economic Data Supports Improving Trends
- A Case for American Manufacturing
"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it."
~~~~ Dr. Adrian Rogers, 1931
Thanks GM… more than just another auto maker
I held off publishing this week’s issue of Signature Update until after the Obama administration and General Motors announced GM’s filing for bankruptcy. Though I suggested well over a year ago that this outcome was inescapable, we’ve now sadly observed many months of indecision and posturing, culminating in an historic event few ever thought we’d live to see. GM’s entry into the bankruptcy courts marks the end of an era in US manufacturing. It’s not that automobile manufacturing won’t continue in the US - it might even become healthier than in recent decades – but the venerable US automotive giant, once the largest employer on planet Earth, will likely never regain its position of automotive dominance. The jingle, ‘… hot dogs, apple pie, and Chevrolet’ will fade into memory as the old GM is reengineered and brought back to life as a shadow of its former self.
Many of you know I’m a long time corvette-aholic, proudly avoiding cure or treatment, and more recently have become a proud owner of an iconic symbol of American Muscle; a 1957 Chevy. My fear, and that of many other middle-aged baby boomers, is that the new GM will be forced to produce cars based on political mandate rather than consumer appetite. Already, GM has been forced to scrap plans for the innovative Volt and ordered to introduce a fuel and cost efficient small car for the masses, one that meets CAFÉ standards, if not consumer preferences. Unfortunately for GM and it’s new owners – that would be us, the US taxpayer - the masses in America vote with their wallets and consistently express a preference for larger cars and SUV’s, fuel efficient or otherwise, or cars like the Volt, on the cutting edge of innovation and technology.
No one wins in the latest saga of GM. As with Chrysler, the UAW (United Auto Workers) fares better than other non-government debt and equity holders, but that’s a matter of degree. Ford, the lone independent among the major US auto manufacturers (Henry Ford, Sr. would be so proud) and seemingly holding a competitive advantage over its government held peers, stands to face stringent competitive disadvantages as administration and legislative actions will undoubtedly show preference to the ‘people’s’ auto manufacturing concerns. Consider the financing terms and tax incentives potentially available to GM buyers that would be difficult to offer to buyers of Ford products. At the same time, Ford may rise in dominance if GM and Chrysler’s engineering and innovation directives become the purview of legislative or administration gamesmanship. Only time will tell.
Regardless, I’ll never forget sitting in my brother’s two toned, metal flake 1956 Chevy two door, going through the gears and playing the radio, while he served in the armed forces during the Vietnam conflict, and wishing I could someday have a car that cool! I was 12 or 13 years old at the time, and the car never moved from its parking place in front of our home, honestly, but I traveled the country in that car. Thanks GM… and thanks to you too, Johnny.
Economic Data Supports Improving Trends
1st Quarter GDP was revised at the end of May reflecting a .4% improvement from the 6.1% decline announced last month; an adjusted rate of 5.7%. While this may not seem like a meaningful improvement, in all reality it is very important. The markets are looking for confirmation that many of the early signs of economic improvement are more than faint hopes and the adjustment of 1st Quarter GDP to a number more in line with economists’ expectations couldn’t have come at a better time.
The latest ISM (Institute of Supply Management) survey reported that most supply managers are observing real growth in the economy. Likewise, durable goods orders increased for the third straight month by 2.1% for March, 1.9% for April, and nearly 3% for May (projected). National Economic Trends, the St. Louis Federal Reserve’s publication of the latest economic data released this afternoon, provided evidence that most sectors of the economy have actually began to see gains rather than simply revealing slowing declines as in earlier releases.
The Conference Board Consumer Confidence Index™, which had improved considerably in April, posted another large gain in May. The Index now stands at 54.9 (1985=100), up from 40.8 in April. The Present Situation Index increased to 28.9 from 25.5 last month. The Expectations Index rose to 72.3 from 51.0 in April.
The change (increase) in unemployment remained steady for the 6th consecutive week as jobless claims continue to mount, but at a consistent pace rather than the previously escalating rate. The pace of jobless claims had been climbing over the prior months and the emerging pattern offers hope that we may be near the height of the unemployment curve. Jobless rates may still increase in coming weeks, perhaps even months, but the current data supports unemployment rates topping out between 9% and 9 ½% by the end of the year. Nonetheless, employment gains may elude the labor markets until early 2010, putting continued pressure on both the housing and retail markets.
April new home sales increased .3% from March 2009 (34% behind April 2008) and existing home sales increased by 2.9% from March 2009 to April 2009. Small, though important gains were seen in most markets as residential real estate inventories fell to 10.1 months nationally. While buyers are still bargain hunting, real estate pricing appears to still be suffering from lower-than-normal loan approval rates, a signal that the credit markets, though substantially improved from late 2008, are operating at less than optimal levels.
Taken separately, these improvements may appear to be no more than insignificant anomalies in an otherwise struggling economy, but together they show clear and coordinated signs that the economy is slowly improving. As credit markets continue to heal and return to efficient, if not irrational, levels of operation, the lynch pin of our economy, housing, will right itself as consumer demand pushes forward.
A Case for American Manufacturing
The decline of GM and other major US manufacturing concerns along side continued increases in unemployment puts a fine point on the need for export-oriented manufacturing operations in the US market. We can all understand the economic efficiency of allowing manufacturing to take place in lower cost labor markets, and we can easily point towards the higher paid service and technology sector jobs that have replaced many manufacturing jobs, but what we may have forgotten is that a US job creating product for export creates more than one job in the domestic market. In general, one job in the US marketplace, in an efficiently ran company creating market surpluses and producing export product, creates one or more other jobs in supporting the local economy.
As we’ve now seen through famously bloated union contracts and the excess wages and benefits they demanded, the problem in US manufacturing has never been the American worker. Rather, it has been the expectations forced on those workers by a media driven economy, fueled by promises of buy now-pay later, a ‘you can have it all’ mentality, and social excesses never before tolerated in respectable society.
As our global economy continues through this ‘reset’ we have an opportunity to create and innovate at such a level that it can spin off hundreds of thousands, if not millions, of export-oriented jobs to support the efforts of innovators on the cutting edge of energy and technology development. These jobs can produce goods and services for which an energy hungry world will crave and pay for. Just as we became the world leader in technological innovation to support the information age, we can become the leaders in clean energy technologies, health care products, as well as financial services, engineering and education.
We can easily make the case that US workers, unleashed to create and build the next wave of energy efficient power plants, technologically sophisticated and fuel efficient transportation systems, and superior manufacturing processes can and ought to be the backbone of the global economy as we venture into and through the remainder of the 2000’s and beyond.
Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management and CEO of Signature Management, LLC
Subscribe to:
Comments (Atom)
Posts
