We recently updated our presentation on today’s economic landscape and what’s on the other side with some fresh data. We hope you continue to find value in our slides:
Yesterday’s second reading on the third quarter GDP showed a downward revision from the robust 3.5% preliminarily reported at the end of October. As November wore on expectations of the second and more definitive read on the third quarter was for a downward revision to the 3% level but no one was alarmed. It was considered more or less statistical.
After taking a look at the revisions from the preliminary report we are concerned for the following reasons:
This revised mix of weakness in business and consumer spending with all of the federal government stimulus in the quarter is alarming and casts further doubt on the underlying strength in the economy as federal stimululs abates going into next year. Our assumption of 1%-3% GDP growth in the fourth quarter will need strong contributions in both consumer and business fixed investment from the revised third quarter levels. We detect an improved level of retail sales in the quarter but will need to see sales results of “Black Friday” to see if that is true. A disappointment in this weekend’s sales will cause a shift in outlook for both the economy and particularly the capital markets which have been seeing the glass “half full” in November despite the warning signs in consumer sentiment, new home sales and continued high levels of unemployment. It is noteworthy that the market gains in November have been accompanied by low levels of trading volume, an ominous sign for sustained capital market gains.
In our previous website and blog articles on the preliminary third quarter GDP, we remained skeptical of the durability of the third quarter gains and said we would be watching fourth quarter economic data closely for future direction. With the downward revision in third quarter numbers, we will be even more vigilant to see if this economic recovery has “legs”.
Best wishes for a Happy Thanksgiving holiday and stay tuned.
Morris R. Segall, CFA, CIC
We recently updated our presentation on today’s economic landscape and what’s on the other side with some fresh data. We hope you continue to find value in our slides:
In a recent article published March 23 for SPGTrend.com subscribers, we examined the social and political toll of the current recession and their longer term impacts on the U.S and overseas economies. Over the course of several blog posts, we will take you through the content of this piece and put what we’re going through into context.
In part one, we outlined an introduction for this series. Part two discussed the first four trends and developments. Part three discussed public anger. Today’s entry, part four, will discuss the ramifications of an even more insidious by-product of the recession: stress.
In addition to anger, the American public is emotionally stressed and physically debilitated.
After experiencing the heady and seemingly inexorable rise in consumer net worth and incomes from the expanding economy, rising stock markets and most importantly, the outlandish increase in real estate values over the 2003-2006 periods, the American consumer has seen his world literally come crashing down since the second half of 2007. It is estimated that the declines in housing values and the stock markets together over the last 5 quarters is more than $15 trillion or an entire year’s GDP. As a result, the American consumer that exuded great confidence and risk tolerance has become stricken with fear.
In the article, “The Fed’s Conundrum,” April 5, 2007, we commented on what we felt was an increase in the fear factor for consumers, which was going to suppress consumer spending and appetite for risk, going forward. We based this on the increase in inflation at the time and the accelerating decline in the housing cycle underway, leading to increased mortgage foreclosures. In addition, as government statistics would later prove, job creation was peaking that spring.
Fear is something the American public doesn’t exhibit very often. The post war period has been one of economic growth and a rising standard of living for Americans. To be sure, the American economy has experienced periodic and sometimes severe recessions, but they have been surpassed by longer and stronger growth periods.
Until this decade. The current recession is the second major economic downturn since 2000 and this recession is by far the most damaging and most pervasive in financial and social terms since the Great Depression of the 1930s. The loss of homes, jobs, net worth, financial security and retirement security has caused the American consumer to doubt his ability to survive and to doubt the American capitalist economic model.
In the current economic environment, Americans are full of worry. A March 4, 2009 article in Advertising Age noted that prescriptions for sleeping pills and anti-depressants had escalated 7% and 15%, respectively, in 2008 despite a cutback in marketing for such drugs by pharmaceutical companies.
Based on the worsening economic climate in the first half of 2009, we would expect such numbers to increase. In the same Advertising Age article a poll by the National Sleep Foundation released on March 2, 2009, found over 30% of respondents said they are “losing sleep over the economy and their own financial situation”. The National Sleep Foundation Poll found an increase in sleeplessness and anxiety is leading to an increase in depression and a decrease in efficiency and productivity on the job.
Regional and local data particularly in cities hard hit by the recession indicate a dramatic increase in suicides, suicide attempts and calls to suicide hot lines. This emotional stress is taking its toll on the overall physical health of the country. We believe doctor visits for emotional or stress related physical illnesses have increased as well as absenteeism from work. The result is a significant increase in medical care costs for doctor visits and prescriptions as well as a decrease in overall worker productivity. In such an environment, people are more nervous and short-tempered, which often leads to increased aggressive behavior including violence. Witness the increase in mass shootings in the U.S. and shockingly in Europe as overstressed individuals react to the loss of their jobs and declines in their financial conditions. In addition, consumer outlooks for the future are negative.
Be sure to subscribe to receive part 5 in this series.
In a recent article published March 23 for SPGTrend.com subscribers, we examined the social and political toll of the current recession and their longer term impacts on the U.S and overseas economies. Over the course of several blog posts, we will take you through the content of this piece and put what we’re going through into context.
In part one, we outlined an introduction for this series. Part two will discuss the first four trends and developments that are unfolding:
1. Social unrest in Russia, Eastern and Western Europe as rising unemployment and cutbacks in domestic government spending programs and consumer incomes. Of particular note are the
street demonstrations and strikes in Western Europe where we have not seen this type of reaction to economic distress since the Great Depression of the 1930’s. It speaks volumes about the level of angst and anger among foreign workers and consumers.
2. This social unrest is creating political change. Governments in Latvia and Iceland have already collapsed and there is increasing pressure on the governments in Ireland, France and Great Britain to stop the bleeding in those economies. Even in Russia, discontent among the populace is being aimed at the current government, which had been quite popular last year.
3. Worker protests abroad are leading to increased calls for expulsion of immigrant workers and protectionist measurers to protect domestic jobs and companies. Globalization has now become very unpopular in the advanced industrialized countries of Western Europe as they face the same erosion of their industrial base as we have suffered over the past decade. There have been attacks on immigrant workers in Western Europe and Russia as frustrated and angry citizens fight for the shrinking job markets in their countries. In short, we see a movement to the political right as nationalist feelings replace the internationalist perspectives previously held overseas. This does not augur well for the future of the European Union and free trade policies.
4. The rise in protectionism is also occurring here in the U.S. as shown by the recent rescission of long haul trucking privileges to Mexican companies that were hauling freight into the U.S. from Mexico. That freight must now be transported from the border by U.S. firms. Mexico responded by putting tariffs on a list of U.S. imports. This backlash against free trade agreements is putting pressure on government leaders who still champion globalization as desirable for U.S. economic growth. Policymakers in Washington and Fortune 500 companies that manufacture and trade overseas are finding themselves at odds with workers and consumers who are losing their jobs to lower cost foreign labor. With unemployment in this country effectively at 9% and going higher, American workers are “mad as hell and aren’t going to take it anymore”. Labor unions helped elect Barack Obama. They expect “payback”. Importantly, Democrats in Congress and the President himself have pledged to re-evaluate America’s free trade agreements and policy. We expect some “pullback” from the liberal free trade policies of the last decade.
Next up, we’ll outline additional trends and provide context for where all of this is heading. Don’t forget to subscribe to our blog to get the rest of this series.
SPG Trend Advisors is a boutique consultancy that provides global economic research for business and other decision makers. With fifty years combined experience between the principals, and through its website, SPG Trend Advisors provides insightful analysis and forecasting to prepare senior executives for tomorrows trends. Visit SPGTrend.com for more information.
