Monday, November 16, 2009

Mid-November Economic Outlook

Some very smart women I know noted recently that some women financial columnists, not unlike some of their male counterparts, sway their commentary toward a political point of view.  In my opinion, that does justice to neither financial analysis, which one would hope would lead where the data follow, nor politics, which one would hope to be policy-driven.  Whatever our point of view, data show both parties have contributed to the deficits we currently have. 
In this column, I endeavor to give financial information as it is, and put it into some historical context, in order that we might understand our best individual financial strategies and which governmental policy decisions one would support which are consistent with a given outcome.
I.  Unemployment
The unemployment rate rose to 10.2% last month.  Anyone who read the July 13 column was expecting this rise, when comparing the recent recession to that in the early 1980's, wherein I noted "the average unemployment rate in the last five months of the recession ended Nov, 1982 was 10.18%, and it averaged 9.8% for the year after that recession was over." 
Although this was expected, it is not good news.  Coupled with the fact that consumer confidence is trending lower, it does not bode well for any sector of the ecomony reliant on discretionary spending.
II.  Other Economic Indicators
Here, the outlook is inconsistent. 
  • Housing is trending upward
  • Manufacturing is improving
  • Non-manufacturing sectors look questionable
  • Car sales have slowed after the "cash for clunkers" program ended
  • Discount and luxury retail sales are moving slightly upward
  • Corporate profits are improving
III.  Conclusion
Economy as a Whole
Given these general economic conditions, it is unlikely that the US Gross Domestic Product will match previous 3.5% growth in the fourth quater.  Given current data and trends, it appears that the year will close with a 2% - 2.5% quarter, and possible decline to 2% at the beginning of 2010.  As the year progresses, if pos-recession employment trends hold true, growth will likely rise to 3% as 2011 approaches.
Investor sentiment has been very positive of late.  My macroeconomic analysis includes 22 indicators, and of all of them, I think sentiment is most predictive.  It is, however, a negative corollary, i.e., the higher the sentiment, the worse the outcome.  It's not the bargain it was before it rose 50%, and I'll quote Warren Buffett, "Be fearful when others are greedy: be greedy when others are fearful." 
I've started hearing, "Get in before you miss the boat."  That always makes me want to jump ship.

1 comment:

  1. Great column. To quote from "A Star is Born"-- "it's going to be a bumpy ride."