Wednesday, July 22, 2009

Will the sun come out tomorrow?

What is the state of the economy? Today this question seems more existential and philosophical than reality based. Over and over we hear things like “signs indicate a possible recovery” or “X number could be a sign things are leveling off”. It almost reminds one of ancient shaman looking at the stars, studying the flight patterns of birds, or sifting through bones to predict the future. It seems each day brings us a new set of “signs”, and a new set of prognosticators telling us how close, far, or indeterminate our situation is from recovery.
Take for example two reports, one from the Wall Street Journal and one from CapLease, both published only days apart in July. CapLease cites employment data and states:

“After 18 months of economic decline, we are seeing signs that the deepest recession in a century may be close to hitting bottom and the economy gradually recovering. The Labor Department reported that 345, 000 jobs were lost in May – well below the 650,000 average monthly job loss in the first quarter and the 504,000 loss in April.”

Now compare this to the Wall Street Journal story, subtlety titled “The Economy is Even Worse than You Think”

“The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.”

Here we have two reports using relatively the same numbers, with both coming to wildly different outlooks of both the present and future (in the case of the Wall Street Journal a near apocryphal vision). One side claims to see the light at the end of the tunnel, while the other maintains we make Alice look like Sir Francis Drake. This is not to fault the process (it is really the only thing we can do) it just demonstrates how differently the filtering mechanisms of disparate brains can sort things out. So in the spirit of “and now for something completely different”, Net Lease Insider will illustrate a set of trends and facts and let you be the judge.

Note: All information was gathered from CapLease inc. You can read their full report by clicking on "July 2009 Newsletter" at this page.
Of Homes:

  • Home prices dropped 7% in the first quarter of 2009, while home sales saw an increase in March and April.

  • 45% of home sales this year were distressed properties sold in foreclosure auctions.

  • Since their peak in 2006, home prices have fallen 32% and now match their 2002 levels.

  • It is estimated that housing is 18-20% below fair value at today’s prices; three years ago it was estimated to be overvalued by 35%.

  • 5.4 million out of 45 million homes in the U.S. (12%) are either delinquent or in foreclosure, with the number continuing to rise.

  • By February 2009 the number of prime mortgages delinquent for at least 90 days, in foreclosure, or turned over to a lender was at 1.5 million, totaling over $224 billion in loans.

Of Consumerism:

  • The Consumer Confidence Index hit 54 in May, it’s highest point since last September and up from 40.9 in April. This constituted the greatest gain since April 2003. A Reading of 90 is considered “normal”.

  • Between March and April, personal after tax income rose by $131.5 billion (1.1%). $121.8 billion of the increase resulted from reduced taxes and increased unemployment benefits. $44 billion could be traced back to stimulus programs.

  • Consumer spending declined 0.01% in April, as consumers saved 5.7% of their after tax income. In March they saved 4.5% and one year ago they saved 0%. Consumer Spending is estimated to make up nearly 70% of GDP.

  • Mortgage debt now accounts for 70% of GDP, in the 1990’s it averaged about 46%. Household debt is at 96% of GDP, it was less than 50% in the 1980’s.

Of Other Factors:

  • Total industrial production saw an annualized decrease of 20% in the first quarter of 2009. This continues a trend of four periods of harsh declines.

  • Commercial paper volume is at $1.5 trillion. Companies sold $55 billion of stock between January and May, making that the busiest period since 2000.

  • It is estimated that 60% of CMBS loans made between 2005 and 2007 will not qualify for refinancing at maturity.

  • Unemployment is at 9.4%.

Now, it should be noted that the report contained a whole host of information which was not reprinted here, so if you really want to engross yourself with numbers and analysis, be sure to check it out. Nevertheless, the numbers provided, combined with a persons own intuition, should be enough to induce valuable insight. So pick a circle and vote, even if the only thing that knows when the recession will end for sure is the dastardly thing itself, and maybe Bernie Madoff.

1 comment:

  1. The issue may not be merely "job losses" as much as it is "full time equivalent losses", which are far greater when one considers the effect of a shift toward fewer hours and part-time employment by those who cannot find a full-time job.