*Disclaimer – This blog post is solely my own opinion and does not reflect the views of my employer.
Now that I got that out-of-the-way let’s get down to the nitty-gritty. I recently attended an economic forecast meeting and I thought I would briefly share some of the more interesting tidbits.
Jobs – The economy has shed 8.4 million jobs and people who still have their jobs are sitting on the sidelines when it comes to spending. The economy needs 10 millions jobs as of today. The forecast is to add 3 million jobs in the next three years. When jobs do come back people are going to have to accept less and adjust to lower paychecks. Forecast is about 4.5 – 5.5 millions people will get rehired at significantly lower wage levels.
Elections – Its predicted that after the elections that their could be gridlock in the form of party affiliations. Historically, when this happens you have a large uptick in corporate spending. This fragmentation in politics brings about predictability in the economy as both sides typically don’t work together for the second half of a president term. Corporations like predictability and it could result in two to three years of robust growth. The hopes would be the growth would take the economy back to semi-normal levels.
Recovery – The economy is recovering, albeit at a snail’s pace. Consumer confidence is up but well below the historical average and things still feel awful.
Auto Sales – Have seen a small recovery but are still way off of normal levels and remain historically low.
Home Sales – In the majority is metro areas around the country the bottom has been found. There are still pockets that could see another 10 to 15 percent decline in prices. The largest problem for the housing market today is the lack of households. The last three years have created a shortage of the formation of households. This is one of the major reason there is an excess supply in the marketplace. These households need housing units, be it rentals or owning homes.
Typically, 3 million households form in a year. Since 2008 we have had a shrinkage of households. So far for 2010 we have had 1.5 million households that did not form. A lot of people have room mates, or are living with relatives. This is directly related to the lack of jobs; no jobs no households. If we had the normal formation of households we would have housing shortages in most metro areas.
Corporate Profits – GDP V. Corporate Profits are at an all time high and rising; 8 to 10 percent of GDP. They have been using a smaller workforce to produce the same amount of GDP. Currently, corporations have 1.2 trillion is cash reserves sitting in banks. They are not spending it on modernization or capital improvements, most are not paying it out in increased dividends to shareholders, and they are certainly not hiring.
Conclusion – Late 2013 the economy should rebound to pre-recession levels. It will be a slow climb.