Economic Notes: Has the Grinch Gone AWOL?
12/14/2009
By Patrick O'Keefe, Director of Economic Research, J.H. Cohn
In December 2007, the economy fell into the most pronounced and protracted downturn since the 1930s. The Grinch had stolen growth and it was not until the third quarter (Q-3) of 2009 that the bottom of the ensuing recession was in sight.
As discussed previously (see: "Bottom-Bumping"), because more than 80% of the quarter-on-quarter GDP gain was attributable to nonrecurring events (e.g., cash-for-clunkers, inventory depletion, and increased Federal spending), it remained to be seen whether the quarterly increase marked the end of recession (i.e., a shrinking economy) or the beginning of recovery (i.e., an expanding economy).
Recent data suggest that the economy is gaining traction. Has the Grinch gone AWOL?
Retail sales, net of autos, rose in November for the fourth consecutive month.
The 1.3% increase was the largest monthly increase in two years and more than double the average gain of the prior three months. Since dipping after the expiration of the clunkers incentives, auto sales have steadily improved. As a result, total monthly retail sales – including restaurants and cars – exceeded the year-ago level for the first time in a year.
In part, the year-on-year gain reflected higher incomes, especially after-tax incomes which have been rising steadily since June. Another factor was the 9.6% rise in household net worth since it bottomed in the first quarter of the year. (Despite two consecutive positive quarters, households are still worth 17.2% less than when the downturn began at the end of 2007.)
The household sector was not alone in recording gains. Manufacturing activity continued to expand as new orders rose for the sixth time in seven months and inventories stabilized (+0.4%) after dropping for 13 consecutive months. Rising capacity utilization suggests that factory employment is likely to begin increasing in the very near future.
With the global economy expanding and the dollar declining, foreign demand for U.S. manufactures increased more rapidly than the nation’s consumption of goods and services produced elsewhere. As a consequence, the trade picture improved – a positive in the calculation of GDP.
After almost two years of relentlessly negative numbers, data for the first two months of Q-4 suggest that the economy has found its footing, and indeed is expanding.
Should December’s data confirm the trend, as expected here, it will mean that, at last, the Grinch has gone AWOL.
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The statements, opinions, and conclusions contained herein are based solely upon the author’s own studies, research, and personal experience. Neither J.H. Cohn LLP nor the author makes any representation or warranty as to the accuracy or completeness of this information. J.H. Cohn LLP and the author expressly disclaim any liability for any loss or damage which may be incurred, of any kind whatsoever, as a result of or arising from the use of any of the information contained herein or reliance on the accuracy or completeness of it.