Recovery…What Recovery?
Posted by Michael A. Kamperman on October 1, 2009
The debate between most economists is whether we are in a V-shaped recovery or whether we will have a double dip W-shaped recovery. What recovery are they talking about? Yes, based on the flawed GDP calculation we probably have a positive reading in the third quarter. The final GDP report for the second quarter showed the economy only contracted at -.7% annualized rate. In the second quarter real U.S. exports to willing buyers fell by 4.1%. But because our imports fell 14% the GDP calculation claims that “net exports” added a positive 1.65% contribution to overall second quarter GDP. If the calculation simply used actual exports, then 2Q GDP would have contracted at -2.8%. The flaw in the GDP calculation has economists overstating the strength of the real economy. This morning weekly jobless claims rose to 551,000. This is higher than the highest week of jobless claims in either the 2001 or 1991 recessions. It has been over a year since we have had a weekly jobless claim number below the 2001 peak of 517,000. Can any sane person accept that we are in the middle of an economic recovery when the official unemployment report will soon reach 10%, possibly as soon as tomorrow?
Auto sales plummeted in September just as soon as the cash for clunkers program ended. The annual sales rate is once again well below 10 million units per year. Consider that September of 2008 was the worst month for auto sales since 1993. Yet the supposed recovery we are in saw Ford sales fall 6% from September of 2008, Toyota sales fall 13%, and GM sales drop by 45%. Does that look like a recovery to you? I look for home sales to follow auto sales into the ditch in October now that sales from the first time home buyers tax credit are behind us. Remember you have to close by November 30 and it is taking an average of 60 days to process a mortgage application.
Sales of autos and homes are big ticket items. Most buyers need both a job and access to credit to acquire either. With unemployment still rising and credit still tightening, it is unrealistic to believe the economy is in a full blown recovery. We need someone in Washington to show some leadership and come forward with a small business and consumer credit program. The Treasury and the Federal Reserve are too content to sit back and wait for the Zombie banks to heal. These banks are undercapitalized and they will not heal on their own. They are going to need more federal support. The housing market is going to need more federal support. The auto market is going to need more federal support. And the job market needs a lot more federal support.
