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July 16, 2009

The End of the Great Recession

image004-300x176This has been one of the longest recessions in over 50 years, but it may end this summer.  This was the finding of BNA’s mid-year survey of 23 well-known economists.  Most Americans won’t recognize the recovery until the middle of 2010.  This delay is due to the fact that the unemployment rate will continue to rise through the end of this year and beginning of next year.


The survey indicates that most economists predict that economic growth will be slow throughout 2010.  They predict a GDP growth rate of just 2% for next year.  At that rate, the economy is unlikely to be able to make any significant gains in employment.  They expect the 10-year Treasury bond rate will rise to 4.33%.  As rates rise, Treasury bond prices fall. 


Other economists disagree.  Brian S. Wesbury, Chief Economist and Robert Stein, Senior Economist at First Trust Advisors in Wheaton, Illinois, see a much more robust recovery.  They are forecasting a GDP growth rate of 3.5% for the second half of 2009, and 4.5% for 2010.  They base their predictions on the following five assumptions.


First – Inventory Levels.  While businesses have been selling off current inventories, manufacturing has slowed to a crawl.  As inventories get reduced, manufacturing will pick up, although it will not be the same as the pre-recessionary level, but it will be significantly higher than its previous lows. 


Second – Trade Deficit.  They project continued declines in the trade deficit.  As the trade gap narrows, exports add to our GDP.


Third – Housing Market.  They expect home building to bottom later this year, and rise in 2010.  Housing starts are now only one-third of the long-term trend.  Any uptick will add to the GDP.


Fourth – Government Spending.  Currently, only about 10% of the $887 billion dollar stimulus package has been spent.  The largest portion is scheduled to be spent in 2010, adding to that year’s GDP.


Fifth – Business Investment.  Plant and equipment upgrades are expected to turn around much faster than previously thought.


Neither Wesbury nor Stein believes that consumer spending will increase dramatically.  They forecast that real consumption will rise only .6% on an annual basis from the end of 2007 to the end of 2010.


Corporate earnings are likely to increase in the next three months, according to the second quarter 2009 Northern Trust Global Advisors survey of investment managers.  Thirty-nine percent of participants think corporate earnings will improve in the next three months, compared to only just one percent who felt that way last quarter.


What the economists believe is far less important than what you do for yourself and your family.  The economic recovery will be meaningless to you if you are not positioned to take advantage of it.  Americans have been shaken by this dramatic downturn.  But, Americans have a long tradition of rising to the occasion in times of trouble.  We recognize what is truly important, i.e., our loved ones, family and friends.  We tighten up our boot straps and move forward.  In the end, the American character will be the driving force that pulls us out of this great recession.


Take the time now to review your situation.  Look at your personal circumstances, debts, investments, and insurance needs.  Determine if you need to make any changes.  Your Money Concepts’ financial advisor stands ready to assist you.  We will be happy to work with you to help insure all your financial pieces of the puzzle are in the right order.


Please feel free to pass this on to anyone you feel might benefit.  We appreciate all of your referrals.