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1/25/10
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Friends and Colleagues,
The government and the press keep telling us the recession is over....so why does it still feel like a recession? Bernanke said last September that "from a technical perspective the recession is very likely over at this point," but he also acknowledged, "It is still going to feel like a very weak economy for some time."
This week, with some help from our friends at Wells Fargo Securities (WFS), we look at some good news and some bad news in the economy to help us understand where we are and where we are going. We also look at what is happening in China, since the state of their economy is becoming more and more relevant to our world.
First some Good News:
• Q3 real GDP was positive and the WFS forecast looks for growth to pick up substantially in Q4 2010, at a torrid pace of more than 5%.
• The Leading Economic Index (LEI) has posted gains in each of the last nine months, and has already returned to pre-recession highs.
• Multi-family starts jumped another 12.2% in December after a steep 70% increase in November.
• Housing permits have risen for two consecutive months, gaining another 10.9% in December.
• Total housing permits are now up 15.8%, with single-family permits up 37.3% vs. Jan 09.
• The Conference Board's Leading Economic Indicators (LEI) rose 1.1% in December after gaining 1.0% in Nov. Per WFS, this signals continued expansion and growth in the second half of 2010.
• Core PPI has only increased 0.9% over the past 12 months.
Now some Bad News:
• Per WFS, recent gains in the LEI are more reflective of government efforts to kick start the economy (yield spread, increase in the money supply) than they are of strong domestic demand.
• WFS does not project a huge spike in consumer spending or big business fixed investment spending.
• Businesses are not yet hiring in earnest...which continues to be a problem for the 10.0% of Americans who cannot find work.
• Housing starts took a step backward in December dropping 4.0%.
• Rough weather seems to have hampered single-family starts, which dropped 6.9%.
So what does it mean?
• While GDP and LEI may seem to overstate the strength of the U.S. economy, WFS tells us the recovery is gradually taking hold.
• According to WFS, a bottom seems to have formed in residential construction, industrial production is picking up steam, consumers are starting to loosen purse strings, and jobless claims are coming down.
• While the recovery may look better than it feels, WFS contends it is a recovery nonetheless.
WFS Economic Projections for 2010:
• The Fed will continue its current target federal funds rate at 0-25 bps for an "extended period"... likely through Q2.
• The Fed will then hike rates by the end of the year.
• As the Treasury continues to issue debt, long term rates should rise...10 year Treasuries projected to hit 4.40% by the end of the year.
• Inflation will remain below 2%.
• Unemployment will remain above 10%.
• The real test for policy and the markets will be if/when the Fed ends mortgage-backed securities purchases currently scheduled for March 31st.
• Overall, WFS projects slow and steady growth ahead.
Enough about us....What's Happening in China?
• Chinese real GDP growth rose from 9.1% in Q3 to 10.7% in Q4!
• Growth in retail spending strengthened from 15.4% in Q3 to 16.5% in Q4!
• Fixed investment spending rose 30% last year!
• China's exports appear to have risen significantly in Q4.
• The overall rate of CPI inflation jumped from 0.6% in Nov to 1.9% in Dec.
• Based on strong growth and mild inflation, the Chinese government is scaling back some of the emergency stimulus measures that were put in place more than a year ago.
o Two weeks ago the central bank raised reserve requirements by 50 bps to 16%.
o This week, the Chinese government announced that it is directing the nation's banks to scale back the pace of new lending.
• WFS predicts that in the months ahead:
o The Chinese government likely will raise reserve requirements further, hike interest rates & slow loan growth.
o GDP growth will slow from 10.7% currently to 9.0% by late 2010/early 2011...a slowdown but not really a "hard landing."
So the US economy is on simmer while the Chinese economy is boiling hot. What impact will that have on the US property markets in the months and years ahead? As always, stay tuned.....
THOUGHT FOR THE WEEK
Taking Ownership
We are all very good at owning our achievements. Our shelves are filled with trophies from sporting victories and our walls hold diplomas and certificates from our academic successes.
But what about owning our mistakes? Making mistakes is part of being human. Owning our mistakes is what makes us adults.
As children it was so easy to say, "It's not my fault". Excuses abounded as we looked for ways to avoid the pain of disapproval.
But now we are adults...and being an adult means taking ownership for our actions...both good and bad. Being an adult means saying, "I made a mistake and I am sorry". Being an adult means understanding that owning our mistakes allows us to earn the respect of others.
In the days and weeks ahead, may we each choose to be an adult when we mess up May we let our colleagues and spouses know that we are responsible for our own actions. May we remember that we earn trust and we earn a good name when we take ownership for our mistakes.
Have a good week.
David Rosenthal, MAI, MRICS
President & CEO
Curtis-Rosenthal, Inc.
drosenthal@curtisrosenthal.com
http://www.curtisrosenthal.com/
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