The Recovery Process
By: Dr. Charles Lieberman
Date: 10/5/2009
Sizeable job losses reported for September were a real disappointment, since job growth is the key to turning initial embers (or green shoots, if you prefer) of recovery into self-sustaining economic expansion. We're just not there, yet. Job growth plus rising wages are needed to provide the growth in income that households depend on to finance growth in spending. Instead, we are still experiencing job losses that offset moderate growth in wages, so income growth is negligible. Consumer spending cannot really take off until income growth becomes material. So, the economy still remains in the early stage of recovery. But a turnaround is underway.
The employment report was not dreadful, just disappointing relative to our hope and expectation. Some of the job losses reported for September seem questionable, notably the large losses in manufacturing, construction, retail, and government. Economists have been ramping up their estimates for third quarter GDP because they understand that the record pace of inventory liquidation must cease, which will benefit manufacturing. For example, auto sales in September were hampered by a lack of supply, particularly at GM and Chrysler, yet still managed a 9.2 million annual rate. Importantly, auto companies have recalled furloughed workers to boost production, although that hasn't visibly increased jobs, as yet. It should soon.
Similarly, housing construction has picked up and boosted construction outlays, as evident in those monthly reports. After falling at a 25% annual rate in the Q2 2009 GDP report, housing should grow by more than 20% in the Q3 report scheduled for release late this month and total GDP may rise by close to 4%. Yet the employment report indicates more job losses in construction, including at residential construction firms. This should also turn around quite soon, or the employment data could be revised upwards.
Hopes for a near-term economic recovery were somewhat dashed by the latest job figures, although few people really expect a sharp or immediate turnaround in the economy. That will take time and the initial stages of recovery will tend to be slow. Time is needed to build momentum. Still, the signs of improvement are considerable. And as we enter earnings season, it is our judgment that third quarter corporate profits will turn out better than expected. The supertanker is turning. But it doesn't turn on a dime. Download this article in PDF Format
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