An Economist’s View of the Road Ahead

An Economist’s View of the Road Ahead
Bruce Steinberg, 9 September 2008, IAESW Congress, Chicago Copyright © 2008 Bruce Steinberg ( All rights reserved.

Where we are now Recession ??? –Definition
When the NBER says it is (the last two recessions (2001 and each lasted 8 months). 4Q2007: revised to negative 0.2 from positive 0.6 Strong 2Q (preliminary) likely not be repeated for awhile National Bureau of Economic Research: A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. In almost every recession the first time the starting quarter is reported it is a positive number, then later revised to a negative number. Although 2Q2008 preliminary GDP came in at 3.3 growth, that is: Regardless: weak growth in the immediate future Copyright © 2008 Bruce Steinberg ( All rights reserved.

Where we are now GENERAL INDICATORS (real) GDP up 3.3 percent
2Q2008 (preliminary) September 26, 2008 (2Q2008 final) up 0.9 percent 1Q2008 (final) CFNAI-MA3 negative 0.80 July 2008 September 22, 2008 negative 0.94 June 2008 Consumer Confidence Index (The Conference Board) 56.9 August 2008 September 30, 2008 51.9 Personal consumption expenditures (PCE) or consumer spending up 0.2 percent September 29, 2008 up 0.6 percent Copyright © 2008 Bruce Steinberg ( All rights reserved.

Where we are now CONSTRUCTION / HOUSING Building permits
down 17.7 percent July 2008 September 17, 2008 Housing starts down 11.0 percent down 29.6 percent from July 2007 Housing completions down 8.7 percent New residential sales up 2.4 percent September 25, 2008 down 35.3 percent from Existing home sales up 3.1 percent September 24, 2008 down 13.2 percent from Copyright © 2008 Bruce Steinberg ( All rights reserved.

Where we are now Current economic situation Subtracting jobs
Unemployment rate is rising Conditions are continuing Key Indicators are consistent Softening employment base Unemployment rate is also a red herring Copyright © 2008 Bruce Steinberg ( All rights reserved.

Where we are now Current employment situation
K Current employment situation Subtracting jobs Unemployment rate is rising Conditions are continuing Key Indicators are consistent Softening employment base Unemployment rate is also a red herring Copyright © 2008 Bruce Steinberg ( All rights reserved.

Where we are now Current employment situation Employment Jobs
Copyright © 2008 Bruce Steinberg ( All rights reserved.

Where we are now EMPLOYMENT Unemployment rate 6.1 percent August 2008
October 3, 2008 (with September 2008 data) 5.7 percent July 2008 4.7 percent August 2007 Number of unemployed persons 9.38 million 8.78 million 7.13 million Job growth down 84,000 down 60,000 Labor force participation rate 66.1 percent 65.8 percent Discouraged workers 381,000 392,000 Part time for economic reasons 5.64 million 5.60 million 4.46 million Copyright © 2008 Bruce Steinberg ( All rights reserved.

Where we are now Current Employment situation Unemployment rising

When the situation will change
Current situation: economy changing gears and coasting Return to growth: when the new economy gets traction Peak December 2007 with million jobs … down 463,000 since then Copyright © 2008 Bruce Steinberg ( All rights reserved.

Where we are now Current employment situation Jobs declining
Peak December 2007 with million jobs … down 463,000 since then Copyright © 2008 Bruce Steinberg ( All rights reserved.

Peak Trough Duration Change 138,078 137,473 8 months 605 0.44% 132,530 129,833 30 months 2,697 2.04% 109,817 108,196 12 months 1,621 1.48% 91,594 88,756 17 months 2,838 3.10% Peak Trough Duration Change Change Dates 91,594 88, months 2, % Jul 81 to Dec 82 109, , months 1, % Jun 90 to May 91 132, , months 2, % Feb 01 to Aug 03 138, ,473 8 months % Dec 07 to ? Copyright © 2008 Bruce Steinberg ( All rights reserved.

Peak Trough Duration Change Per month Dates NBER recession 138,078 137,473 8 months 605 75.6 0.44% Dec 07 to ?? ?? To ?? 132,530 129,833 30 months 2,697 89.9 2.04% Feb 01 to Aug 03 Mar 01 to Nov 01 109,817 108,196 12 months 1,621 147.4 1.48% Jun 90 to May 91 Jul 90 to Mar 91 91,594 88,756 17 months 2,838 166.9 3.10% Jul 81 Dec 82 Jul 81 to Nov 82 Copyright © 2008 Bruce Steinberg ( All rights reserved.

How it will end Traditional GDP growth at beginning of recovery
New GDP drivers at early stage of recovery Job growth now at small business: 10 to 1 ratio Economic impact of new jobs Fast GDP growth as depleted inventories are replaced Respond cautiously as not allow the recovery prove itself – just-in-time inventory takes more importance Means lesser economic impact because small business does not offer the same level of benefits, so less disposable income Copyright © 2008 Bruce Steinberg ( All rights reserved.

An Economist’s View of the Road Ahead

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