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Stock Ideas Investors Daily Edge Is The Economy Ready To Turn The Corner?
Stock Ideas Investors Daily Edge Is The Economy Ready To Turn The Corner? 
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By Doug Tjaden, The comfort with which most Americans have lived their lives is likely to end within this decade--due to global events that are now manifesting themselves. |
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| Is The Economy Ready To Turn The Corner? |
| Monday, 01 September 2008 | ||||||||
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This past week we saw several economic reports that were not only better than expected, but actually showed improvement over the previous month. In all, there were four reports that both beat expectations and beat the previous report. For more on the specifics of the reports, you can look at Christian Hill’s Market Watch below. The information is not what I want to go over here. What I want to look at is the prospect that the economy is improving and whether or not it will continue to improve. My colleague Charles Delvalle mentioned in Friday’s IDE that the improvement in second quarter GDP numbers were greatly influenced by the economic stimulus package the government created back in the spring. Without a doubt this package is having a big impact on the economic numbers we are seeing right now. The only segment where the numbers are improving that may not be the result of the stimulus package is the housing market. The refund checks were nowhere big enough to substantiate going out and buying a house. What looks to be happening here is that buyers are taking advantage of the current market and they are setting the terms rather than the sellers setting the terms. Desperate sellers are taking what they can get and in most cases, they are probably feeling fortunate to be getting out from under the home as values have been declining sharply. As Lynn Carpenter pointed out last week, some of the housing numbers are somewhat misinterpreted based on the way houses ramped up in recent years. Homeowners that bought 5-7 years ago are still making money in most cases. It is the buyers that came in within the last few years that are getting hit the hardest. They bought at or near the peak of the real estate bubble and these folks (myself included) have seen their equity diminish sharply over the last year. This is only part of the equation though. The inventory of homes on the market stands at 11.2 months worth and a record number of homes on the market at 4.67 million. The year over year median price shows a decline of 7.1 percent.
I have written in IDE before that I don’t think the economy turns around until housing turns around. The bottoming process in the housing sector may be starting, but an actual upswing seems to be a long way off given the inventory levels. Since you have received this issue on Labor Day, let’s turn our attention to the labor market. So far this year, each month has shown jobs being lost. Not once has there been job growth in the seven months reported so far, and the August numbers that will come out on Friday are expected to show more jobs being lost. If the August employment report shows more than 37,000 jobs lost, this will push the total jobs lost this year over the 500,000 mark. The chart below shows the historical nonfarm payroll changes on a month-by-month basis. There are two things to note on this chart. First, the job losses each month this year are not as severe as what we saw during the recession of 2001-2003. The one sharp decline in ’01 was right after the terrorist attacks. But the other downward spike was not associated with these events. The second thing to note is that the only extended periods of job contraction were in the recessionary periods of 1991-1992 and 2001-2003. The talking heads in Washington can argue the semantics of whether we are in a recession or not, but these numbers sure do suggest we are in a recession.  The bottom line is that yes, a few things within the economy are starting to show signs of stabilizing. While this is encouraging to see, stabilization is not the same as reversing course. Until there is growth in the labor force and until the housing market starts turning upward, the economy will remain on shaky ground. If inflation continues at the current pace, the economy will continue to limp along. Good luck and good trading, Rick P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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