At the beginning of April the current unemployment rate was announced at 8.5 percent for March. This percentage has increased at a very rapid pace and is expected to go higher. While this is truly a painful statistic, the fact that companies are being proactive is a confusing sign. When things do improve, and they will, this percentage should begin to improve almost as quickly as it went up. This statistic is referred to as a lagging indicator and is forecast to increase to nine or ten percent before topping out. But again, once that occurs it could correct very quickly.
The biggest drain on the economy is housing. Because the number of homes that were built was greater than the demand, it created a level of employment that has been dramatically corrected. The housing industry has a great number of ancillary jobs in addition to the actual building of the homes. One of the recent statistics that gave the markets a little hope was the recent housing starts number that was just announced for March. While not a big change from February, it was taken as a sign that things are beginning to stabilize.
U. S. Capacity Utilization was recently announced at 69.3 percent. It is the lowest reading on record since the statistic was first recorded in 1967. According to Wikipedia, the definition of capacity utilization is “a concept in economics which refers to the extent to which an enterprise or a nation actually uses its installed productivity capacity.” So you ask yourself, how in the world can this be a positive development? Here is my rational. It stands to reason that when demand returns, a turn around in the economy is not out of the question. After all of the heavy lifting and at this stage in the recovery, if we couple this statistic with the available work force (unemployment number) and the low business inventories available, a turn around is likely.
The pieces of the puzzle are in place. One obstacle is the retail demand side. We continue to replenish our savings accounts instead of buying new stuff, but once our confidence returns that too will change. A recent headline on Bloomberg stated: “U.S. Michigan Consumer sentiment index rose to 61.9 percent.” The article went on to say that this was the second month in a row that it has improved and is taken as a sign the recession may be easing. This is positive and once the evening headlines begin to broadcast positive stories, such as this, the American consumer will do what they do best, spend. As I said in an earlier FYI, don’t ever get in the way of an American shopper and a bargain because you will get run over every time.
Some additional positive news is that the average age of the automobile on the American highway today is now approaching eight or nine years old. As we all know, vehicles can only last so long before needing to be replaced. But, unfortunately the American automobile industry, as we know it, may not be the one that benefits. It isn’t your Father’s Oldsmobile anymore.
Another positive indicator is the stock market. Unlike housing, it is not only stabilizing, but it appears to be building a base. To add fuel to the fire, over $11 trillion remain on the sidelines in the form of cash and near-cash at a time when rates on these investments are close to zero. That number, $11 trillion represents a $1.1 trillion increase from its level a year ago. That is some very serious money that is anxious for the stock market to reach a bottom so it can be invested at a much more positive rate of return.
As the title states, the economic statistics continue to give hope and hope does spring eternal!
