Economic Commentary 07/24/2012
Hope Springs Eternal
This quote from Alexander Pope could be the best description of how we face the task of rebuilding our economy after the devastation of the financial crisis and recession of four years ago. It seems like we have been taking baby steps climbing out of a giant crater. We still face huge obstacles such as a huge budget deficit which leaves little room for help from the government, a slowing world economy, impending foreclosures and a general lack of confidence in the future. To that we say--hope springs eternal. No matter how tough things seem to be, man will envision a better future. We see many signs that this hope could come to fruition. One just needs to look at one segment of the economy to see what is happening, slowly but surely. In June, U.S. car sales were at an annual rate of around 14 million. While this is lower than the peak of 17 million before the recession hit, it is up 40% from the bottom of 10 million just over two years ago and up over 20% in the past year alone. Bottom line is the fact that the population of our country is growing and cars eventually have to be replaced.
More importantly, there was a precipitous drop in the first time unemployment claims the week of the July 4th holiday. Statistics which measure holiday weeks are typically volatile and should not be relied upon. Plus the weekly claims figure is subject to temporary factors which also make it a poor measure of health. Indeed, the temporary factor was that U.S. auto plants were delaying regularly scheduled summer layoffs to keep up with the volume. Yes, auto plants. Plants needed to keep up with increased production. If the auto industry hires more people, what will these people do---especially since rates are at historic lows? They might purchase a home and this would contribute to the recovery of the housing sector. Builders are building more homes this year so that they can be sold to auto workers and others and this also creates more jobs. Even home prices are rising and it has been reported that over 700,000 people who were underwater on their home loans have moved to break even or better during the last quarter alone. A mere five percent rise in home prices will move another two million "above water." Hope springs eternal. If the auto and housing sectors start hiring, so will other sectors as well. This builds confidence and confidence builds more hope. So why can't it spring up like an eternal fountain?