Some good thoughts in the holiday season

The Economy in November 2011 – Reason for Thanksgiving

Thanksgiving? Really?  This economy?  Well, yes.  It could be worse.  Much, much worse.  The Great Recession was bad alright, and some sectors of the U.S. economy like housing still seem to be in a deflationary depression, but we’ve so far avoided the terrible fear of repeating The Great Depression, a repeat performance that some had dubbed “Depression 2.0”.  Today the U.S. economy continues to grow slowly but think back 3 years to the fall of 2008.  When I look back the image that comes to mind is one of Secretary of the Treasury Paulson appearing before Congress with fear written all over his face.  His eyes were wide and he seemed to stammer as he made his case.  He knew that we were on the brink of tumbling into Depression 2.0 and he came on bended knee to request the money to bail out our banking industry.  This act was the polar opposite of what one would expect from his administration, but they did it to prevent Depression 2.0.   It was a bitter pill to swallow for sure.  A Great Recession was unavoidable by that time, and by the skin of our teeth we did in fact avoid Depression 2.0.  It was a terrible, frightening time, and the fears were well founded.  I, for one, am very thankful that we did not have to endure Depression 2.0, and that some things are improving in the U.S. economy.  Now it seems that only the Europeans can drag us down again if they can’t fix their problems.

Here’s a short list of good things happening in the U.S. economy.

• Economic growth: The economy started to decline in late 2007, then accelerated in late 2008, but since June 2009 GDP has grown every quarter.  It hasn’t been rapid growth (last quarter was revised down to 2% growth) but it sure beats a shrinking economy.
• Job growth:  We went from losing hundreds of thousands of private sector jobs per month throughout most of 2008 and 2009 to a period beginning near the beginning of 2010 when private sector job gains became the norm.  Job growth has been slow lately but it is still growth. 
• Unemployment claims:  Claims for first time unemployment benefits were over 600,000 per week in early 2009, but they’ve now declined to where the 4 week rolling average was less than 400,000 per week.  For the week ending November 12^th the number of claims fell to 388,000.   Once this first time claims rates gets below 375,000 on a consistent basis, we should see stronger job growth and more of a drop in the unemployment rate.
• Unemployment rate:  Unemployment jumped from a pre-recession rate less than 5% to a peak at 10.1%, and was most recently pegged at 9.0%, a very slow decline corresponding to slow economic growth, nevertheless, the rate is dropping, not increasing.  (In the Great Depression the rate is estimated to have peaked just over 25%.)
• Job Openings:  The Bureau of Labor Statistics tracks job openings as well as employment.  The number of job openings has increased from a low of 2.1 million in the summer of 2009 to a post-recession high of 3.4 million at the end of September.  This is the highest level since the summer of 2008.  Employment growth tends to follow growth in job openings, so this is a good sign.
• Leading Economic Indicators:  The Conference Board’s  index of Leading Economic Indicators was up 0.9% in October compared to forecasts of 0.5%, and a prior month figure of only 0.1%.
• Industrial Production:  Production was up 0.7% in October according to the Federal Reserve, compared to a decline of 0.1% in the prior period and a forecast increase of only 0.4%.
• Retail Sales:  Retail sales grew 0.5% in October, better than the expected 0.2% that economists had forecast.  The recent flash reporting for Black Friday sales also looked strong at a 6.6% year over year increase, according to ShopperTrak. Today is Cyber Monday so we don’t know how online sales will fare, but through November 20, they were up 14% compared to the same period last year.  The National Retail Federation projects holiday spending will increase by 2.8%, besting the 10 year average of 2.6%.  It seems like our consumer-based economy has decided to consume.
• Holiday Hiring:  The National Retail Federation predicts 480,000 to 500,000 seasonal hires, similar to 2010, but well above the 2008 and 2009 levels.
• Small Business Optimism:  The National Federation of Independent Businesses reported a slight increase in their Optimism index in October from 88.9 to 90.2.
• Consumer Confidence:  The University of Michigan’s Confidence index increased from 61.5 to 64.2.
• Consumer Credit:  Consumer’s put their money where their mouth is and increased their borrowing by $7.4 billion, well above the forecast of $5 billion.  A lot of that went to buy new vehicles.

I choose to forget about the European sovereign debt issue for now, and give thanks that we have resilient American economy that will recover from the Great Recession, hopefully without seeing a double dip recession.  While giving thanks, let’s all pray that we never get to witness Depression 2.0.
-K. Perry Campbell, Ph.D., CM&AA
Chair, AM&AA Market Research Committee
Principal & Managing Director
ACT Consultants, Inc.

Keep the good thoughts flowing! Its what we all need this time of year!
#winterbet2012