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Economic Update

9/23/10

Friends and Colleagues,

The recession is dead, or so the NBER tells us. It died of unnatural causes in June 2009 at the peak of the Federal Stimulus programs.

Then why do we still feel so bad? Why are so many of us still out of work? What does the future hold for us?

This week we look at instant reactions to yesterday’s meeting of the Federal Reserve, and we see what our friends at Wells Fargo Securities (WFS) tell us about the numbers in our “post recession” world.

Yesterday’s Meeting of the Fed

The Federal Reserve met yesterday and suggested the following:

• Their concern has moved from inflation to deflation.
• They will hold steady the current rock-bottom interest rates.
• They may begin buying US Treasuries again.

Here are some instant reactions from various pundits (as published on Market Watch):

• “A shootout between hawks and doves on the FOMC has resulted in a draw and the officials have decided to take no concrete action for now.” -- Sung Won Sohn, professor of economics and finance at California State University.
• “This sets the table for QE (Quantitative Easing) in November or December should it be necessary.” -- Eric Green, chief U.S. rates research and strategy at TD Securities.
• “More asset purchases (by the Fed) would lower long-term interest rates, but this is not the problem. Instead, a need to deleverage and a chronic lack of confidence are preventing households and firms from boosting borrowing and spending more.” -- Paul Dales, U.S. economist at Capital Economics.
• “Gold is making a new record high in the wake of this policy statement, which suggests that there is growing market discomfort with the idea of additional QE.” -- John Ryding and Conrad DeQuadros of RDQ Economics.
• “Three times in today’s statement the Committee claimed the Fed needed to maintain inflation at levels consistent with its mandate. In so doing, Bernanke and Company have morphed the Fed’s actual mandate, which is to maintain price stability, into a mission to create what they believe is the optimal level of inflation.” -- Peter Schiff, president of Euro Pacific Capital.

It seems the Fed pronouncements are as clear as mud in the marketplace.

So now let’s look at the numbers in our “post recession” economy and what they mean according to WFS.

Sounds Bytes on the Economy (from WFS)

First Some Good News:

• WFS tells us that recent economic reports mostly came in ahead of expectations, which further alleviated fears of double-dip recession.
• Retail sales rose solidly in August, with overall sales rising 0.4%.
• Weekly first-time unemployment claims declined for the third week in a row but remain relatively high at 450,000.
• Factories are awash in excess capacity, which means inflation is unlikely to accelerate in a big way anytime soon.
• Consumer spending appears to be holding up at around a 2% pace for the 3rd quarter.
• Industrial production rose 0.2% in August, roughly in line with expectations.

Taken together, recent economic reports show the economy continuing to grow at a modest pace in the third quarter.

Now Some Not-So-Good News:

• September surveys from the Federal Reserve Banks of New York and Philadelphia both point to some slowing in coming months.
• The level of unemployment claims remains high, and is consistent with sluggish job growth.
• Housing starts have declined in each of last three months and are now down 23.3% since the end of the homebuyer tax credit.
• The collapse in single family starts more than erases the two months of incentive-induced gains.
• Permits for new single family homes are running slightly below the current pace of construction, suggesting little to no improvement in construction over the next few months.
• Residential foreclosures by banks were up 25% from a year ago, the most since the start of the mortgage crisis.
• Leading Economic Indicators rose just 0.1% in July after falling 0.3% in June, pointing to sluggish economic growth, but according to WFS, no double dip recession.

What is Happening in Other Countries?

• Canada’s consumers, unlike their American counterparts, have been aggressively tapping consumer and mortgage credit to help fuel their current spending.
• Taiwan’s industrial production is clearly slowing down. Industrial production for July came in slightly below market expectations, rising 20.7% from a year ago!
• Strong readings from German manufacturers point to solid growth in German GDP in 2010. German GDP rose 2.2% in Q2, the fastest rate since reunification.

Is it Much Further? According to the following quote from WFS, yes it is.

“Well, here we are, two years after the devastating bankruptcy of Lehman Brothers, and we still have a long ways to go to reach our ultimate destination, which is a return to normal levels of unemployment, delinquency and foreclosure rates, bankruptcies, household debt, bank lending and so on. “
As always, our best defense is to stay informed….so stay tuned……

THOUGHT FOR THE WEEK

Embracing Change

The only thing that remains constant in our world is change.

Last week my family honored the one year anniversary of my Dad passing away. A year ago he was with us in person, and now he is here only in our memories.

Three years ago many of our readers were gainfully employed, and now many are still looking for work.
Nine years ago the US had a budget surplus, and now we have the mother of all deficits.

Like it or not, our world continues to change around us…as it always has and as it always will. We may try to fight the change and wish for things to be as they were….but the past is gone.

My Dad once said, “I haven’t spent my life analyzing everything. I spent my life living.” He was a very wise man.

We can choose to live…to embrace what is….to accept the changes that are thrust upon us.

In the days and weeks ahead, may we see our lives as they are, not as they were. May we embrace and celebrate what we have….before it too is gone. May we choose to truly live our lives, and by doing do, may we bless our lives and the lives of those around us.

Make it a great week.

David Rosenthal, MAI, FRICS
Curtis-Rosenthal, Inc.
drosenthal@curtisrosenthal.com
http://www.curtisrosenthal.com/





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