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September 26, 2023
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Economic Update


Friends and Colleagues,

Oh what a week this has been. Much of the world is still in shock over the situation in Japan, and much of the So Cal real estate community is still in shock over the tragic passing of our good friend Bruce Krall. Our thoughts and prayers are with all those in Japan and with Bruce’s wife and two sons.

Their lives have been turned upside down and forever changed. We wish them all a healing and a future that can make some sense of these tragedies.

With this as our backdrop, we look forward to see where the economy stands in light of recent events. Our friends at Wells Fargo Securities (WFS) give us their views on the impact of the Japan situation on the domestic and global economic stage.

First Some Good News – Per WFS, the Economic Expansion Is Still Underway

Despite uncertainty overseas and market volatility, WFS tells us that economic indicators continue to suggest economic expansion.
• Manufacturing output increased for the 8th consecutive month.
• Regional manufacturing surveys in New York and Philadelphia surged in February.
• Strength in the factory sector is being led by robust growth in the auto sector.
• Weekly first-time unemployment claims fell by 16,000 to 385,000 in the week ending March 12.
However, housing starts plunged 22.5% in February to a 479,000-unit pace, the 2nd lowest level on record. WFS does not expect a genuine recovery in housing starts to occur until the pace of foreclosures slows significantly.

Economic Impact of the Tragedy in Japan

• The bulk of industrial capacity in the three most heavily damaged areas of Japan is located far from the coastal areas hardest hit by the tsunami.
• Implications for the rest of the world are probably not dire, as Japan had not been contributing much to global growth before the earthquake and tsunami.
• While the short-run implications of the Japanese disaster will put downward pressure on growth, the Japanese recovery from the disaster will have a larger positive impact on global economic performance.
• WFS suggests that this may be the event that will finally take the Japanese economy out of a two decade long depression, as the Japanese administration puts out a fiscal policy package to reconstruct the affected parts of the country.
• U.S. exports to Japan, which account for only 5% of total U.S. exports, will be weakened in the near term, but should rebound in subsequent quarters.
The effect on the United States should be marginal and temporary.

Japan, US Fed Policy & Interest Rates

• Prior to the Japanese earthquake there was very little chance that the Fed was planning to hike rates in the near term.
• Per WFS, recent events in Japan reduced that probability even further.
• The market had looked for approximately 100 bps of Fed tightening by the end of 2012; however, it currently anticipates a bit less than that now.
• Unless the crisis suddenly spirals out of control, WFS doubts that the disasters will have any lasting effect on Fed policy.
• On the other hand, the Japanese have been large buyers of U.S. Treasuries and this could put some added pressure on U.S. Treasury yields.

Thus say economic experts on the cost and economic implications of the tragedy in Japan. Let us never however lose sight of the human cost….the suffering and pain…and the courage of those living in the midst of the madness. Our hearts are with you as you work to pick up the pieces………

Dealing With Loss

Earthquake…Tsunami…Nuclear Fallout…
Capital markets crises…Economic woes…Mountainous Government Debt…

In the past week and in the past several years, we have all been touched by loss. Loss of loved ones…loss of innocence…loss of confidence…loss of optimism in a better tomorrow.

So how have we responded to our losses? We of the golden generation, who always had it all…

Our bright and shiny world has changed….and we have been given the gift of finding out what we are made of.

Have we been whining and complaining and running for cover? Have we looked for someone to blame for our losses?

Or have we been digging deep, and strengthening ourselves to meet the challenge? Have we embraced the new reality and found ways to build toward a better tomorrow? Have we reached out to those around us to offer support?

Each of us has our own way of dealing with our losses…every day we get to choose.

In the days and weeks ahead, may we choose to be the solutions we seek. May we find inner courage and strength to brave this new world. May we focus our intentions and our efforts on helping others to build a better tomorrow. And at the end of the day, may we find moments of peace and give thanks for the blessings we still have.

Make it a great week!

David Rosenthal, MAI, FRICS
President & CEO
Curtis-Rosenthal, Inc.

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