Confirming Data of Recovery

August 31, 2009, 2009 Edition, Volume III

Inside Signature Update

- Confirming Data of Recovery
- Retiree’s Impact on Unemployment


Confirming Data of Recovery

The range of economic news in past weeks has confirmed a recovery trend that began several months ago. While 2nd Quarter GDP fell by 1%, it is likely that the first two months of the quarter actually posted declines with the last month, June, offering real growth. While there are still valid concerns over the state of the economy, it appears that we are well on our way to stability and growth patterns that should fully develop in 2010.

Though federal stimulus programs have yet to provide meaningful benefit to the economy, it does appear that consumers are beginning to breathe a sigh of relief. Personal incomes are up slightly, consumer confidence has improved, unemployment is just beginning to lessen its grip on the nation and the stock markets have posted impressive gains.

Interesting to note, President Obama is experiencing his lowest approval rating to date and his numbers are trending lower than even some of the country’s least popular presidents at this point in their presidencies. His recent re-appointment of Ben Bernanke may have won him some favor with the capital markets, but likely cost him within his own party. Without question, the ongoing battle over health care now being waged in the house, senate and media has put pressure on both congress and the administration to make decisive action.

New home sales increased by 9.6% in July over June 2009, and 13.4% when compared to July 2008. At the current sales rate there is now just over 7.5 months of new home inventory on the market, nearing the healthy 6 month level. Existing home sales posted increases in recent months to bring inventory levels down to less than ten months. Though there is some threat of banks holding foreclosed inventory continuing to feed that inventory into the market, most expect continued improvement in both the volume of sales as well as sales prices. California and Nevada, two of the hardest hit markets have already marked a bottom in their housing prices and have seen meaningful month-over-month increases.

Profits from current production (corporate profits with inventory and capital consumption adjustments) increased in the 2nd Quarter 2009 to $67.6 billion from $59.1 billion in the 1st quarter. Many consumers write this off to big business simply expanding their profit profile, but in truth, the US economy is dominated by small business and they’re often the first to feel economic improvements.

July durable goods orders were up 4.9% in July over June and sales of manufactured goods were up .9% in June over May. These increases were posted in spite of manufacturing inventory continuing its downward trend by 1.1%. Increasing sales figures in the face of decreasing inventories represent purchasing levels sufficient to consume newly manufactured product as well as inventory manufactured in earlier months. Business inventory/sales ratio now stands at 1.38 (scale of 1.1 – 2.00), lower than at any time since January 2000 and has been on a steady decline since January 2009.

Consumer Confidence Index (CCI) level up to 54.1 over 47.4 in July as the Consumer Price Index (CPI) declined 2.1% in the last 12 months. Anything over 50 on the CCI is positive. Producer Price Index (PPI) declined .9% in July in the face of increases in energy prices; not enough of a decrease to signal a concerning level of deflation, but an important indicator that inflation pressures continue to be held at bay.

New jobless claims were down to 577,000 from over 630,000 only a few months ago with the overall unemployment level resting at 9.4%. The 53,000 claim decrease may not seem significant in the face of 9%+ unemployment, unless of course you’re among those who returned to work or survived a lay off.

Personal Income (PI) increased in July by $3.8 billion or .1%, but the increase was more than offset with a decrease in Disposable Personal Income (DPI) of $4.6 billion (.1%). The DPI increase appears to have been due to a slight increase in energy (fuel) costs and the increase in transportation costs wrought by the ‘Cash for Clunkers’ program.

The US equities market (stock) extended its rebound to over 9580 on the DOW and 1030 on the S&P 500 by 8/28/2009: up 17%+ since May. Those detractors promoting a ‘sell in May and go away’ strategy would have missed out on the largest portion of the rally. Though some traders are concerned that the current market levels could give way to a 6-8% correction by the end of September, others insist the recovery in the stock market is yet more stable than that of the economy as a whole. First Trust’s Brian Wesbury offers strong evidence for support at these market levels in his recent ‘Wesbury 101’ video commentary – worth taking the time to review.
http://www.ftportfolios.com/Commentary/EconomicResearch/2009/8/26/this_is_not_a_sugar_high


Retiree’s Impact on Unemployment

Many of us have read articles or seen news magazine coverage of how the decline in the stock market may have motivated some would-be retirees to postpone retirement. With decreased corporate participation in pension funding and a shift towards dependence on 401(k) and IRA investing, many Americans have felt the need to postpone or alter their retirement plans, but a new study suggests that declines in the investment markets are only one of a number of factors influencing this decision.

Fears over the general state of the economy, the potential impact of the current administration and congressional agendas, concern for the future of Social Security and Medicare, and dramatic decreases in residential real estate prices have caused many to postpone retirement or seriously alter what their retirement may look like. Though we’ve certainly endured periods of time during which one or two of these elements have been present, we’ve not had this level of uncertainty since the 1930’s, and its now becoming apparent that a slow down in the rate of retirement is having a major impact on the employment markets.

Unemployment rates have increased due to lay offs, corporate hiring freezes and the dramatic slow down in the housing market, but data is now showing that as much as 2% of the 9.4% unemployment rate may be caused by older workers who would normally be expected to retire and free up space in the workforce are extending their employment. In addition, more retirees than ever before have re-entered the labor market and are now filling positions previously occupied by other younger workers.

It's difficult to get a firm read on just how impactful this trend has become, or how far it might extend, but its certain that the job openings expected to be left in the wake of the baby boom generation’s retirement phase won’t be as numerous as expected. Worse still, it may represent a serious drag on reducing the current unemployment rate and that will have a detrimental impact of overall economic growth by some margin.










Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management and CEO of Signature Management, LLC