American Pet Products Manufacturers Assoc
The recovery of the economy? What recession?
In early November, the Talking Heads were breathless reports of the economy, "Mayor" 3.5% in the third quarter … the economy is recovering. The end of the economic downturn also marked the end of the recession that began in the fourth quarter of 2007. It attributed much of that growth to rebound in auto sales. Read the full government report, go to www.bea.gov .
The index of leading economic indicators, which was positive for seven months, also suggests that the economy is recovering.
So, is it true? Are we on a sustainable growth path now? Is it the government's statement on the economy means the worst is behind us? The Index of Leading Economic Indicators tell us the same?
Well, consider the reports and see where it comes from growth. Maybe that we provide some answers.
To start the third quarter the growth rate has since been revised downward to 2.8%. And the following table shows the contribution the growth of various sources for our economy.
Contribution to growth were:
Thanks This data table is a little busy, but it is important to understand the true nature of what some call a recovery. Will realize the most important contribution in Third quarter economic growth was restocking. In my mind, put things on the shelf is empty, no growth. It is simply the inverse massive and aggressive inventory, we've seen in the fourth quarter of 2008.
So if we have in storage, the growth rate slips to 1.9%. Let eliminate defense spending and health, which are not produced by growth. After all, support our troops in Iraq, Afghanistan and around the world should not be considered as economic growth. And health care for an aging population should not be considered new growth.
If we eliminate the defense and health growth is now reduced to only 1.1%. However, a major contributor to this growth is still in vehicle sales. Now let's look a little More on this article.
Month in auto sales months are very volatile and seasonal. So while we had the silly "dismantling" a government program Gift lack some sales began in the third quarter, two other factors are more important. Pent-up demand has grown and the scrapping of the age of the catalyst.
pent-up demand is the increasing age average cars on the road, now more than 9 years. In addition, interest rates in auto loans are almost half than they were in early 2007. The average car now has over 100,000 miles on it and the interest rates on loans for new cars are small. Underwriting standards, 10% down payment, have not changed in recent years and average prices have not changed much and are a little less than $ 30,000.
Most of us are accustomed to see the total number of vehicles owned, shown in the table below. But remember, a lot of cars we buy are imported and do not add to economic growth in the U.S.. This table gives a complete picture of the car buying consumer during the last decade.
As you can see, sales of cars has been limited to approximately 16 million per year. As car buyers went on strike last fall, sales Car fell below 10 million per year a level not seen since the early sale.
However, the suppressed anti-aging fleet vehicles and low interest rates increase the demand for cars from its current level.
There is another factor that gives us an idea of car sales in the future. Makes 1.2 cars per driver. This means that only 83% of the cars we buy are needed for transport. The remaining 17% are discretionary and are purchased for support our lifestyle. So anytime we're in trouble and the need to reduce, in recessions, you can easily reduce the cars purchased.
Obviously, that's what we saw last fall and during the first half of 2009. We delayed our purchase of cars, and have. The elimination of this discretionary application, car sales will stabilize at about 13 million euros a year.
Now look in car sales affecting our economic growth. The following table shows the cars sold each month, which were manufactured in the United States.
Source: U.S. Department Trade
The areas shaded pink on the curve are periods of recession. You'll notice car sales are steadily declining in the last recession in recent years or not. We saw a dramatic fall earlier this year, and sales have increased slightly during the third quarter. However, this recovery is very much part of the expression pattern is not unique to this recession.
The result of the accumulated demand lower borrowing costs through auto sales will be higher than the low monthly sales earlier this year. I hope that car sales will resume the long-term trend of seasonality and volatility.
Now back to our "growth" story. As we have seen, the only important factor for growth in the third quarter was in car sales. Many analysts attribute the government's recovery program. It makes no sense.
Aging high mileage vehicles and low interest rates have a more lasting influence car sales and powerful than any other gift of the government can be. In consideration of these two positive elements is negative discretionary car purchases equal to 17% of total demand. Car shopping can be delayed or canceled, even … at least for a while.
Oil trade imbalance =
And before we're all very pleased with this growth wild, we must remind ourselves of the negative impact on trade growth less than 0.8%. This is mainly due to our oil imports. More growth of this trade imbalance will be worse than we import more oil to accommodate more business.
The Congressional Research Service, the arm Congressional Research recently published a report on oil reserves in the United States representing the United States has the world's largest reserves of fossil fuels, more like Russia. The report is titled "Fossil fuels United States Resources: Terminology and summary reports "and was released on October 28, 2009. Jump to www.opencrs.com to download this report.
We have the largest endowment of fossil fuels for all countries that import large quantities of oil. This is the result of bad policy and political pressures on the environment. Unfortunately not exploit our own resources reduces economic growth and places a continuing downward pressure on the dollar.
Advanced Economic Indicators
The Conference Board's index of economic indicators said in April that the economy is recovering. Index has been positive every month since then. But look more closely at the components of this index. major contributors to performance be positive performance providers (platforms restocking) and stock and bond markets. As I said before putting things in the empty shelves is not considered sustainable growth.
The stock and bond markets have expanded higher. The stock market is up 62% from its low in March. bond prices Corporate also increased, especially in the high yield market up 56% from its low in March. These price increases have come without the benefit of increased income, ranging assessments nosebleed levels.
Other elements, such as consumer expectations (low and below), claims unemployed (bad, but the stabilization) permits workweek on average (stable in 45 years under), and construction (from a very low, too low) for tell a different story. So it seems that the index of economic indicators lead us astray, with the only indicator of growth is an unjustified increase market price of capital.
Some "growth" story, huh? Conservative investors should be extremely cautious in this environment.
What Is the next quarter?
I think it's important to see this highly touted "growth" story economic performance in the third quarter as a unique event.
After all, where is this quarter and next quarter's growth is coming … More war? More bands and ponds? Most cars do not really need? I do not think so.
In the long term growth economic development is the formation of new businesses that provide goods and services demanded by consumers. These companies hire more workers and increase because their products are sold at a profit. The reader's interest to ensure that each of us is going to happen …. Unless our government is an obstacle that hampers growth natural high taxes and heavy regulation and costly.
And that's where we are. No contractor in their right mind would start a business today. Obstacles to success and growth are too large, which makes the business too risky. The prospects for strong and sustainable economic growth not good until the government removes these obstacles.
What are the possibilities of our radical Muslim socialist president and a spirit, as Congress understand the real sources of growth? The measures taken by this administration and Congress to date to ensure the resumption of limited economic development and short term. The economy will be significantly less effective than its potential.
What recession?
Now that we have determined there is very little growth in the 3 rd quarter growth numbers and the prospects for growth in coming quarters is not good let's take a look at the recession and how bad it is.
Is there a recession? Of course it was. But we have to look a little closer to finding a vision overall severity, spread, and duration. Just accept the revelation of the government that the real GDP declined for two consecutive quarters is not very useful for investors.
We must understand the parts of the economy are sound and safe, and parts that are extended and vulnerable. In fact, I find it useful to think on recent economic developments in terms of two economies.
Two economies
Is there a recession or two economies? I think the recent economic events are best explained by disregarding a monolithic economy goes up or down together and unity, but considering Two of saving operating somewhat independently of each other.
A stable and healthy economy, and another is wrong, sick and had no reason to be first place. But they are linked … then good or bad, it can be shown in the exercise of another.
The first relates to the provision of goods and services that all need, such as housing, food, clothing and other needs of ordinary families in America. This included education, entertainment and lifestyles. As you can see, this economy is critical, important, healthy and functional.
The second economy is one that never should have existed in the first place. This is an economy based on the liars and losers buy homes they were not home. This economy is sick and dying and at some point will no longer be possible.
Review of endless stream of economic background data of the two economies will give an overview of investment opportunities and dangers.
Real Economy
Title numbers are often unemployed. And it is true, unemployment exceeds 10% and shows little sign of failure breath. Underemployment is 18%. Appears to be little political pressure to do something for the high and rising unemployment and the government probably is. But as always, will too late and do bad deeds. The recent summit on employment is a big joke.
Following table compares the total wage employment (not unemployment) to total income and personal consumption expenditures. Paid employment includes most of us. Does not include self-employed and farmers.
Normally, unemployment is the figure commonly reported, but the number one confused. Includes the unemployed to report every week, but not those who do not report or whose benefits have expired or those who have given up seeking employment. There are millions of these people and the number of unemployment are ignored completely. It seems more relevant to consider how much of us used and how it has changed. That's why the use of employment rather than unemployment.
Employee jobs (blue line) dropped dramatically since the late 2007. Nearly 8 million people lost their jobs in the past two years. Both economies have been affected. For example, 1.6 million construction workers were dismissed for lack of construction. But the real economy also lost jobs. Manufacturing employment fell by 2.1 million people. This reflects both long-term trend of fewer U.S. manufacturing and the decrease related to the cessation of panic in the supply chain last fall.
The employment behaves as it did in previous recessions. In the 2001-2002 recession, employment declined and continued to decline after the recession had ended. We expect the same this time of recession … a continuous decrease employment.
The graph also shows the income (green line) and costs personal consumption (red line). While employment fell off a cliff, income and personal consumption remained stable. In income and consumption before the recession continued to rise as employment fell.
Revenue fell slightly and the personal consumption has not declined at all during this recession. The average salary has increased. The same happened in the last recession. consumption revenues have stabilized and continued to increase personal.
There are several elements of personal income. It includes compensation of employees, the largest part of investment income and government revenue as transfer payments. Examples include payments Government social security welfare and Medicare payments.
No downturn in personal consumption. 70% of personal consumption and what are the services sector increased each quarter. In fact, service charges have never fallen by a quarter, recession or not.
The following chart compares the total income, not has declined in this period of recession in compensation of employees a. In fact, you can find a t extending two lines, in particular, since 2005. Employees is important because it is the main factor of total revenue. And is the source of payments for government taxes.
Given the large number of unemployed expect lower income earners, and has, but not significantly. In Indeed, revenue per employee increased in this period of recession.
Service employment has remained virtually unchanged. The decline in employment in the sector were offset by increases in employment of health workers and federal employment.
care health workers and the federal government asking "What recession?"
Federal Reserve Bank of St. Louis: Source
Although income levels have remained virtually unchanged during this recession, concern at this point chart is a salaried income is decreasing. If the earned income continues to decline, our economic "recovery" is to be of short duration.
Let's look at some empirical indicators to examine the crisis from a different perspective to the governance indicators. We focus on entertainment, gifts charity, the cost of living, and others to gain a better understanding of this "recession".
'S American animals
Consider an American love story with our pets. According to the National Survey of pet owners, 62% of U.S. households own a pet. The property has increased over time, an increase of 56% of households, when the first survey was taken in 1988.
The following table shows The total cost of ownership of pets during the decade.
The annual cost of animals
(Billion dollars)
As you can see, our pampering of pets has increased over the past two recessions. Property and the amount has increased. New products, such as palliative care and an airline that carries pets, but are just two examples of how we are given about our animals company, not recession.
Our pets are asking: "What recession?"
Of trash
Next we consider our waste. In particular, the amount of food waste produced by households America and restaurants.
the remains of American food
Source: Agency for Environmental Protection
Tonnage produced has decreased slightly during the last recession in 2001 but rose again the following year. Even with this decrease of 2%, the percentage of food waste in total solid waste has increased to 11.4%. In 2008, a recession year, both in quantity and the percentage increased. America produced a record 32 million tons of food scraps into the worst recession since the seventies.
The waste haulers are asking: "What recession?
College Football
Ask the fans of college football in America. We will check your response to the recession facing the National College Athletic Association Division I football records assistance in the past six years. This does not include all of these college football play, but the Division I level of competition in college football and has the largest number of followers. The following table shows the annual attendance records of the 119 schools included in Division I.
Source: National College Athletic Association.
As you can see, attendance is increasing every year, recession or not. In the worst recession since at least mid of the 70's, college football continues to grow.
football fans of the university to ask: "What Recession? "
New Business
As we all know, small businesses are an important and vital to our economy and overall employment. There are about 6 million U.S. businesses that employed people. The difference between large and small businesses is the number of employees. Large enterprises are defined as those with 500 employees or more. Only there are 18,000 large businesses in the U.S.. Small businesses with fewer than 500 employees, representing 64% or 14.5 million of the 22.5 million new jobs added to economy from 1993 to 2008. third of these new jobs came from a new business.
The following table shows the total number of new companies started with the number of businesses closed, and the relationship begins to close. About one percent of companies add new ones every year at 6 million existing businesses. The failure rate of new companies during the first five years of existence has always been high, about 80%. The following table follows that only shows the number of businesses open and close each year, not his longevity.
As you can see, the closures amounted to approximately 85% of new business formation from 2004 to 2007. However, the proportion rose to 95% in 2008, clearly reflects the difficult economic climate.
Business formations and failures
Source: Small Business Administration
new businesses is a key employment and economic growth. Start new remained virtually unchanged, the failures have increased dramatically. The recession is one reason. Federal regulations is another. Here the cost of federal regulation on business each year.
Annual cost of federal regulation
(Cost per employee)
Source: Small Business Administration
As you can see, the engine of the economy companies fastest growing small ones most affected by the regulation. Federal regulatory costs on small businesses are 45% higher than the costs for large companies. This tends to discourage economic growth and make more small business failures likely. High taxes and regulations to punish ensure growth economic growth in the coming quarters to warm and vulnerable.
Charity Donations
One might expect charitable giving to decrease when times are tough. And he did fall in 2008, but not significantly. Interestingly, contributions to churches and charitable institutions and international compound. The decline is a major social service agencies and education.
The following table describes the charitable donations during this recession, source indicating that individuals are the main beneficiaries, which are mainly churches.
Donations
Source: Giving USA 2008 report
Most donors are told: "I do not care if there is a recession." And many churches and charitable organizations, saying: "Thank God for the generosity of the American people, even in times of crisis.
The cuts
Is that all? No, of course not. Discretionary spending has been reduced. We are buying fewer cars, as already discussed, and vacations are less expensive and extravagant. We have reduced the restoration, especially in upscale restaurants. The days of business lunches are $ 50,000 ice sculpture … at least for now. And miss anyone except ice carver.
For most families make their lives as they have always done. However, five million unemployed will an impact on all of us. You and I could have a job, but a family member, friend or someone you know is probably out of work.
The recession and difficulties due to unemployment economy. But we must remember recessions are a natural and necessary part of the business cycle. That's why they call a cycle of … It has two upper and lower phases. Economic cycles are in good health. The cycle goes too far. At its peak, which stimulates the marginal investments are not. These deficiencies cause economic disruption, including unemployment, but also lay the groundwork for the next cycle to begin.
Solomon man scholar who ever lived, assures us there will always be there as long cycles and the earth. So instead of trying to ban them, because governments are desperately trying to do, then we should include in our investment planning, as a normal and recurring.
False economy
It is an economy that should never have existed in the first place. Could not exist without the liars and losers. I speak for millions of homes we have built, who were not at home. The liars and the losers have to buy increasingly high prices, all facilitated by government requirements for banks to lend to unqualified borrowers and void. It was the triumph of hope over experience and it was inevitable end badly. Liars are not worthy of loans and the losers do not know what can afford.
The housing bubble that had time to form the following table illustrates.
Source: U.S. Census Bureau
The blue line shows the steady increase in total units in U.S. households. The sharp decrease in 2002 is only a change in how the Census Bureau Monitoring of this information has not diminished.
From 2002 to 2008, America has added to its housing stock. In 2002, our housing stock was 117 million households in 2008, our housing stock was 130 million households. At the end of the third quarter of 2009, we had 130 302 000 housing units. This includes houses and buildings apartment. The number of households has stagnated over the past six years about 110 million dollars. The current number is 111,612,000.
About one million new households are formed each year. And in need of housing. A good general rule is the United States needs to build new homes of equal number of new homes each year.
The number of dwellings and the number of households that watch. In the past, these two lines (blue and red lines) were very close. In 2002, the blue line and red line began to diverge. From 2002 to 2008, built 13 million households do not need and not occupied. It's a bubble!
Chart also shows the median home price in green (right scale), which began to rise sharply before the recession of 2001-2002.
As housing prices grew, we build more houses. The difference between the houses and the homes are empty houses, which continues to grow, as well as build more houses.
This model construction of higher prices and more empty houses kept getting worse, creating a massive housing bubble. Of course, we have enabled all idiots in Washington that he wanted every voter own a home, even temporarily and reckless.
The music stopped when house prices could reach step further and began to fall in mid-2007. After some delays, construction of new homes began to fall from the intolerable rate of 2.2 million per year.
As you can see in the chart below, begins immediately after the recession 2001-202, despite the absence of increased households. And now, new housing starts have fallen below the level of new homes. As stocks of surplus is absorbed, new housing construction will resume a more normal and sustainable level of about 1 million a year.
Source: U.S. Census Bureau
Add a new dimension I'm sorry this image, funding. If all these houses were built with 100% of the shares that have not been built. The reason they were built as 100% or near 100% financing was available to worthy borrowers. Congress passed laws requiring banks to lend to the liars and losers. This has created a recipe for evil that built the largest bubble that market forces would have allowed.
The following table shows the total amount of all households in the U.S. (Blue line). This mainly mortgage debt, but also includes $ 2.5 billion in consumer debt such as loans cars and credit cards. It also includes two sources of funding for mortgage financing that made the housing bubble worse than it should be.
The first source was mortgage pools (red line), organized hundreds of mortgage originators and sold to small investors by companies Wall Street. The second group received the support of government agencies, like Freddie Mac and Fannie Mae (Green Line).
Source: Federal Reserve
After rising rapidly from 2002 to 2008, total household debt has stabilized and begins to decline. mortgage pools have decreased significantly. Essentially, no new deposits were formed and existing pools are settled or dismissed. The sad part is that government-sponsored loans continue to rise. All apparently includes a housing bubble, except the government.
The construction of houses, we have funded loans they could not pay millions Occupied. Many are unemployed.
The following table shows the employment levels of both the construction and financial services. As expected, the construction industry is more volatile than in the bank. Yet both industries have spent millions of employees over the past two years.
Reserve Bank St. Louis Federal: Source
One million six hundred thousand construction workers and almost 500,000 financial services workers have been dismissed from the onset of recession.
According to the American Bankers Association, 14.1% of the houses were in a state of distress or foreclosure. This is a record since the American Bankers Association. was collecting data in 1972. This amounts to little more than 4 million homes.
As lenders with mortgage, banks suffer massive radiation losses. So far this year, 129 banks failed and were closed by the FDIC. This compares with 26 Bankruptcy bank in 2008 and only three in 2007.
Unfortunately, the real economy and many banks and normal prudent borrowers got caught in the real estate bubble. Rising house prices affected all families who moved for professional reasons or career. They had to pay more and borrow more money to their new home. And the bursting of the bubble has left them with less capital than when they bought the house. In fact, they stick, at least for the next few years, households with more loans the value of the house.
Loans Limited
The banks have become much more cautious in their lending since the crisis housing and the freezing of credit markets. The following table shows where they are now investing. It is certainly not ready for business and consumers.
As you can see, commercial loans (called C & I loans) decreased by $ 250 million last year. And consumer credit decreased slightly. The real revelation is the excess of deposits banks must keep with the Federal Reserve Bank.
All banks are required to maintain a minimum amount of reserves held on deposit with the Federal Reserve. The minimum green line shows 2000 to October 2008. Great part of the $ 700 million government bailout cash that went to support major banks last fall was immediately re-deposited in the Federal Reserve. As you can see in excess reserves increased from near zero to $ 1 billion last year.
Conclusion
The credit crunch banks, falling employment, lower house prices, bank failures, the seizure of homes, and very few are beginning to provide clear evidence that false economy in danger of extinction.
False economy is not very large compared to our national economic engine, but nevertheless causes with many sorrows. Unfortunately, that's how bubbles end … in pain and loss.
Ok, so let's add this:
"The Most of our economy is strong, functioning and healthy.
"The prospects of slow growth until the risk / return a better balance
"The housing bubble deflates and the false economy at risk
Strategy Portfolio
My analysis is that there is recession in much of our economy, and certainly not recovered.
Prognosis is for us to spray along, hampered by excessive regulation, confiscatory taxes and the abandonment of the economic slow directors has made the economy world's most powerful.
In this context, it is essential to adhere strictly to our investment disciplines of high and sustainable income. We will continue to avoid investments related to the false economy such as housing and finance.
That long and prosperous life
Mike Williams, CFA
About the Author
Mike Williams is a professional money manager and Chief Investment Officer for Panhandle Portfolios, Inc. He has a BBA from the University of Massachusetts, an MBA from Southern Illinois University, and has held the Chartered Financial Analyst (CFA) certification since 1990, Certificate #13376.
He has been a credit analyst, a foreign exchange exposure analyst, an international pension expert, an international equity portfolio manager, a Japanese stock analyst, and the founder and chief executive officer of several companies engaged in a variety of business ranging from commercial real estate in New England to recycling electronics in China.
APPMA Unveils Name Change
