2009Jun20 Week In Review

2009Jun20 Week In Review

 

June 21, 2009
WEEK IN REVIEW:
 
June will mark the 19th month of the recession that began in December 2007. This economic contraction is the longest in the post-Depression era. Factoring in the -6.1% GDP from the first quarter of this year with 2008 results, it will be among the most severe contractions since the 1930s.
 
Each month that passes brings us closer to economic recovery which many analysts believe is visible and will begin by year’s end. “Green shoots” of new growth are being reported such as the Commerce Department’s data that construction spending rose for the first time after five monthly declines. Positive corporate earnings reports are beginning to arrive. Consumer sentiment has turned positive after a two year hiatus.
 
However, consumer behavior continues to favor debt reduction and constrained spending. Fears of job losses have not abated. Combined losses in stock and retirement portfolios and home values has redirected incomes and increased our national savings rate to 4.2% in February from virtually zero in recent years. While reducing household debt strengthens family finances, it simultaneously means less commercial activity for businesses. The resulting economic recovery should be mild as profits will still be difficult to generate.
 
Housing has traditionally been the leader for recovery. Demographically, the Boomers are several years past their peak in demand for trading houses. The next major demand will come from the Millennials who are just beginning to exit college. It will be a few more years before their numbers are large enough to absorb significant supply. We expect those supply and demand factors to balance out within the next three years. This segment of our economy must stabilize before banks and consumers willing expand their tolerance for risk.
 
However, on the global front, container traffic at the Port of Los Angeles fell 16.3% in May, year over year. Until this shows positive signs, it is unlikely that the government’s GDP numbers are going to improve.