As we head into Labor Day, summer is nearly over and the long hazy daze of hot weather are coming to an end. It’s traditionally the time of year when various financial institutions, including the stock market, begin to perk up and take notice of what’s been happening since the weather was less languid.
This year the return from vacation is as hectic as ever. Economic news over the last week has been terrible, showing a horrific decline in home sales, stubborn new jobless claims, and a huge downward revision in GDP. None of this can be taken as good.
The first thing that I think bears some scrutiny is the continued high rate of initial claims for unemployment, which remains well above the 450k per week line that would signal a net gain of jobs. There was one good week for these claims over the summer, but generally speaking we are losing jobs about as fast as we create them – or slightly quicker. There are no signs that this trend is changing.
Constant worries about employment and the expiration of a mortgage assistance program are given as the main reasons why home sales fell off a cliff. Sales of homes may not worry those of us who aren’t realtors, but they lead to falling prices and then, over the long haul, more foreclosures. The simple fact is that credit is so tight that hardly anyone can get a mortgage these days, meaning we can expect all of this to continue.
Some of this is a hold-over from the international shortage of credit since the Greek Crisis, which was easily predicted. But there are other forces at work that could create another wave of foreclosures in 2-3Q 2011. I’ll write about that in depth later.
The worst news was the downward revision of GDP growth, which could turn negative later this year. That would signal a “Double Dip” Recession, the latest term for the situation we are in and apparent replacement for “Great Recession”. All of these terms that are trotted out are nothing more than euphemisms for what no one wants to say, which is Depression.
The economic growth that we saw in 2009 has to be seen as anemic when compared to a Federal deficit of about 12.5% of GDP. This was enough of an increase over previous years that it is reasonable to say that all non-governmental sectors of the economy have clearly been declining. As the “stimulus” is removed and the deficit declines, we can reasonable expect that GDP will decline, as it is. Why this appears surprising is, in fact, the only surprise.
So where are we at the end of our long vacation? It’s not looking good by any measure. We won’t know what 3Q10 looks like for a few months, but the initial reports are not showing us anything good. When the full story of what we did over our summer vacation comes out in October it’s not likely to be good – and that is part of the reason why stock markets, in particular, tend to dive in October.
Enjoy the last week of summer. I think this could be a long Fall – in more ways than one.