Saturday, January 7, 2012

The Big Economic Picture

It's funny how the newspapers do not have a clue about economics.  Then again, neither does the average person on the street.  Many are fearful right now, and let me be very clear... That is the environment when you want to be buying stocks.  Check out this article on how the average Canadian believes we are in recession although the data doesn't say that at all.

http://business.financialpost.com/2012/01/05/canadas-top-economists-bearish-on-2012-outlook/

Not to worry, main street will figure out that the world isn't coming to an end.  What will it take for them to change their mind?  Likely once the stock market has rocketed ahead a few thousand points.  Then main street will start buying their mutual funds again only to be disappointed that they are once again buying at the top.  And so the cycle repeats itself. 

What does the Economic Data look like?

What are economists seeing that main street doesn't?  Well lets take a look at some US economic graphs (with limited commentary).  Please note some of the graphs are from three of my favorite blogs: Carpe Diem, Califia Beach Pundit, and Calculated Risk.

US REAL GDP (click to enlarge)









Note: As of the forth quarter 2011, the US economy is now larger than every before. 

Retail Sales










Note: Real Retail Sales will eclipse the previous high in Q4 2011 also.  This is despite the labor market being 4.5% below its pre-recession high. 

Employment













Note: The ADP private employment report last week was the largest monthly gain in decades.  Construction jobs are still depressed. 

Commercial and Industrial Loans










Capital Goods Orders










Housing













Household Debt Ratios













Note: Americans have significantly lowered debt levels.  Household debt relative to incomes are at the lowest since 1993-1994.  North of the border, Canadians continue to pile on the debt. 

Auto Sales











Conclusions

What we step back and take a look at the big picture we can see that things are improving.  The only area of the US economy that isn't seeing any growth right now is in housing.  When the excess housing inventory that was built during the last boom has been worked through, the economy will rocket ahead.  As seen in the chart on construction jobs above, over 2 million jobs have been lost.  When you add in the jobs lost by companies that supply the construction industry the total is much larger.  These jobs will eventually come back and recently we have already seen small signs of improvement.  When housing officially turns the corner the US economy will grow at a rapid clip for a good while. 


Best Regards,

Kevin

1 comment:

  1. Good post Kevin, I've seen this reaction over and over, as people only focus on the bad news and miss the good news. After all, good news doesn't sell as well in the media. Peter Lych was right in saying: "spending more than 5 minutes a year on economic analysis/predictions is 5 minutes too much". There are so many econ, indicators du jour, that it keeps many economists gainfully employed analyzing the data all day. I think it's important to have a rough 40,000ft view of the economy, but that's about it. It's disturbing when I hear of companies like Ford ( and most fortune 500 companies - not picking on Ford )that employ economists to "forsee the future". They would be better served paying people to find out what kind of cars consumers want and how they can build better cars. I'm sure there are no economists on the payroll at Berkshire and Fairfax.

    Andre DesRoches

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