Green Shoots
Spring is here and throughout the land, green shoots are popping out of the soil. This is an age-old sign of hope. The Federal Reserve Chairman, Ben Bernanke, recently used this analogy to describe the current condition of the economy.
Some of the green shoots have taken place in the residential real estate market, one of the hardest hit areas in the economy. Although, a couple of months do not necessarily indicate a trend, we have witnessed a pickup in existing and new home sales. Also, the housing market index is up. Critics will point to the fact that these numbers are coming off historic lows, but they cannot deny that it is an important change in direction. With the $8,000 tax credit available to first-time home buyers, (or those individuals who have not owned a home in three years), there is more incentive to buy now. Mortgage rates are currently at historic lows. This green shoot makes it easier for someone to afford buying a home rather than renting. The affordability index, which compares the cost of owning a home to average income, is at an all-time high. When taken together, these factors add up to a bottoming out of the housing sector.
Low mortgage rates also mean greater cash flow to those who refinance from higher rate mortgages. Refinancing applications have been coming in at breakneck speeds as savvy homeowner look to take advantage of these low mortgage rates.
Consumer confidence has also climbed in the last two months. Consumers make up about 66% of our economy. The confidence number at the end of 2008 was awful. Many Americans were worried about a possible depression. Those fears have waned. January and February retail sales’ figures exceeded expectations. March’s figures were disappointing, but it must be remembered that Easter was in April this year. In fact, retail sales’ figures are positive for the first two weeks in April. Also, we must remember that
starting in April, many Americans will see an increase on their paychecks as a result of the stimulus package that was passed in February.
Corporate earnings’ reports are now coming in for the first quarter of 2009. Many of the financial institutions’ earnings have exceeded expectations. There is now a great deal of talk about repaying the “bailout money”… as fast as possible. Goldman Sachs announced a stock offering for the purpose of raising funds to pay back the bailout. Tech giant, Google, announcedearnings that exceeded expectations and other tech companies have followed suit.
On the global scene, China’s economy is still growing, although the rate of growth has fallen from the 10% range to the 6% range. This growth is occurring despite their poor export numbers. The Chinese internal market is what is causing their growth. This growth has a ripple effect on other Asian countries who export goods to China and that, in turn, has a ripple effect on the U.S.
Unemployment continues to be a major problem. In all likelihood, the unemployment numbers will grow even after the recovery begins in earnest. Most economists now believe that unemployment will top out at the 10% range in 2010. Fortunately, we have seen a few weeks where the unemployment filings have dropped. But this drop will not keep the unemployment percentage from going up. It will only slow the rate of growth, and hopefully lower the eventual top.
We are not “out of the woods” yet. A recovery, beginning in the third quarter of 2009, seems more likely.