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No one has to already tell you that we are in a hard hit and resilient recession, one in which the many of us probably have not experience in greater depths before. What began in December 2007, at the peak of the last economic expansion, has carried us into unparalleled events, with the fall of Lehman Brothers, following AIG, Goldman Sach, and Merlyn lynch, has left our credit market in shambles. The collapse of Wall Street has had a tremendous impact on Main Street, giving way to an unhealthy national unemployment rate of 9.7%, up to date. Most of us have been affected by this in one way or the other, we all probably know of a friend or family member that has been laid off, and some of us maybe unable to get that well deserved pay raise that’s long due, or worst, you might even be a recent college graduate looking for a job. So, this recession is getting a little tiring to say the least; the question on everyone’s mind is, just how far down the rabbit hole are we? Have we hit rock bottom? Well, to be frank, it’s rather unclear and a bit conundrum, but a long recovery does seem to be ahead of us.
From a global perspective, Asian markets have been the hardest hit, since we make up a considerable portion of their net exports. Asian markets however have begun to see signs of recovery, China for example has legislated bank stimulus that’s sponsoring more lending, in efforts to shift their reliance on global exports to United States, hence, more consumer loans will result in more domestic consumer spending. European economies on the other hand have also begun recovering, thus far, with both European and Asian markets showing progress; makes it an even more compelling case for our own recovery as well.
On a national level, our growing unemployment is a lagging indicator that things are beginning to improve, but, conversely, other indicators seems to turn the other cheek, for example, GDP (Gross domestic product), which is the measure of total economic output in goods & services produced, expanded in Q2 (2nd Quarter) from a negative contraction, Q2 was a contraction but it did not contract as vastly as much as in Q1. Another indicator, of lending activity, is the monetary base indicator, Data from the Federal Reserve Bank of St. Louis, indicates that the nation’s total monetary base (capital lending money in the banks) which has reached an unprecedented peak of $1.8 trillion in the 1st quarter of 2009, has began receding, which may be indicative of either banks lending more money to consumers or that they are paying back the Feds. So, in any likely event, and despite of how rigid the credit markets might seem to be to consumers; but credit conditions have likely improved for consumers, compared to months and months back from the onslaught of Wall Street Banks. Another important mending indicator is in some various consumer durable goods indices, these indices are likely to indicate and measure if consumers are buying retail goods. Some of these indices, for example like the manufacturing durable goods, look quite optimistic, which has had a tug by the cash for clunkers program. Other signs such as stock indices, like the DOW, (Dow Jones Industrial Average) precipitates some recovery, the DOW is at about 9,441 points, since it has rallied and sustained significant points since its last dooms day, in late 2008. Moreover, the absolute best indicator worth considerable attention is the consumer confidence index; this index is a measure of what people think about the current state of the economy and what’s ahead. Consumer data from the Conference Board.org, indicates that consumer confidence has increase in August by 6.7 points to 54.1 points, this likely implies that consumers are beginning to feel a lot better for the road ahead, which is very good because consumers will spend more if they are confident, verses, if they aren’t so confident, they will tend to save more of their disposal incomes than spend. We also are seeing good indicators from the housing market, as US mortgage application rose by 7.5%, and the refinance index rose by 12.7%, notably, accordingly to NAHB (National Association of Home Builders), “Builder confidence in the market for newly built, single-family homes rose one point in August to its highest level in more than a year” which they partially attribute to the first time home buyers tax credit. Although we are beginning to see mild signs of recovery, but however one factor still remains challenging, and makes for an even convoluted analysis. The consumer personal savings rate seems to have almost reached its 10 year peak, as consumers are now savings as much as 5% of their disposal income, (net income after cost of living allowance). This strong savings rate indication is does not likely to support strong consumer confidence, since they move in inverse tandem. But it does not necessarily has to be too despairing, as more and more consumers are now cognizant of the uncertainties that lie ahead, and so they feel they must begin to save more. But, extenuatingly, the growing savings rate will put back more lending capital into the banks, which will help the consumers save for a rainy day, and hopefully help the banks generate more consumer loans. These excess funds will likely contribute to mass spending consumptions in better economic times, but will not help add catalyst to the slowing economic recovery.
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