Economic Notes: Rain Delay
6/26/2009
When it comes to forecasting, economists are advised to “give a number, or give a date, but never both.” As a consequence, those interested in the timing of a recovery resort to asking “what inning are we in?”
So, at the mid-point of 2009, 18 months into the longest recession in 70 years, “what inning are we in?”
In its final estimate of Gross Domestic Product (GDP) for the first quarter (Q-1) of 2009, the Bureau of Economic Analysis (BEA) found that the economy contracted slightly less than earlier calculated. Despite the tweaks, it was a dismal quarter, but it appears that the worst of the recession is in the past.
Recent data confirm that during Q-2 the recession’s downward momentum slowed and some sectors are already bouncing along the bottom.
Sales of existing houses rose 2.4% in May, the second consecutive monthly (m/m) gain according to the National Association of Realtors®. New home sales were virtually unchanged according to the Census Bureau. Prices rose m/m in both segments, with resales up 3.3% and new sales 4.2%.
New orders for durable goods, which account for about half of all manufacturing activity, were up 1.8 % in May and inventories were down for the fifth consecutive month. Nevertheless, shipments have fallen for ten consecutive months and unfilled orders continued to shrink.
After declining for two consecutive quarters, personal incomehas grown in the first two months of Q-2. The gains were not entirely salutary, however. The m/m increases were largely the result of an 8% recession-driven jump in income transfers. Employee compensation fell marginally, the fourth m/m drop this year.
Households have clearly changed their spending behavior in response to the recession. While after-tax incomes increased by $178.1 billion in May, consumer spending only rose by $25.1 billion. The savings rate hit 6.9% as consumers put away the plastic.
“What inning are we in?” Really doesn’t matter. The players are concerned about the storm – it threatens their jobs and incomes – and they’ve gone into the dugout. Until they return to the field, the scoreboard reads: rain delay.
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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.