Recession? NO WAY!

"Did she say the economy is actually getting better!?!?"
(Photo by Greencolander of Flickr)

Yes, I know what you're thinking. That my title is crazy, right? May’s stock market performance was dismal and these last couple weeks have been sad, to say the least. However, I do not feel that we are moving anywhere close to a recession.  The US economy is sluggish, that’s for sure, but folks, we are improving little by little. 

Want to hear my proof? Let’s go then!

• The GDP (gross domestic production) growth rate is still forecast to be approx. 2.5% for 2012 and 3.0% for 2013 compared to negative 3.5% in 2009, +3.0 in 2010, +1.7% in 2011. The historical annual average growth rate from 1947-2012 is 3.25%.  
• New housing starts are on a slightly upward projectile since bottoming out in March of last year.  And projections for the rest of 2012 and 2013 show strong improvement.  Remember that the US creates 1.5 million NEW households every year.  The foreclosures and short sales have flooded the market since 2008 but that product is starting to dry up.  New households will need someplace to live!  So, we should start seeing housing prices start to rise by 2013. A sidenote: I have a few friends who have recently sold houses in the San Diego North County market and the houses have sold very fast with back up offers to boot.  One house in Oceanside sold in 1 day for $25,000 more than the comps indicated. Good news!
• Banks are lending again.  Big uptick in commercial and industrial loans as well as consumer loans in 2012.  
• Unemployment remains high at 8%, there is no one disputing that.  However, we are still losing vast numbers of jobs in the public sector—government, states, schools, cities, municipalities, etc…  Which may not be a bad thing since we all know that government carries a lot of bloat.  The private sector is doing well. Over the last 6 months, the household survey (The household survey, in contrast, estimates the nation's employment based on responses from interviews with approximately 60,000 households) has registered 1.7million net new jobs created compared to 1.0 million on the establishment survey (The payroll survey estimates the nation's employment based on responses from a sample of about 400,000 business establishments).  That is a difference of over 600,000.  
• April savings rate was 3.4% compared to over 8% a couple years ago.  This indicates that consumers are indeed spending again as they are more confident.  Remember that 70% of the GDP growth is driven by consumer spending!  
• Retail sales are very strong and very far from recession levels.  
• The U.S. is still the world’s largest manufacturer.   
• While China is indeed catching up, there is no other country close to our manufacturing production.  The U.S. has done a remarkably good job of holding global manufacturing against the onslaught of China.The stock market is projecting a lot of gloom and doom out there in the marketplace.   

"Too worried! Need more treats!"

Worries about Europe, not enough job growth, stagnant housing, fear that Congress will keep kicking the can down the road in terms of the deficit, etc… These are rightful concerns and I think the market is imagining the worst possible outcomes.  But there is definitely room for optimism as based on the numbers above.  Personally, I feel that the biggest boost to the US economy and a way out of this malaise is for Congress to come to an agreement and adopt the Simpson Bowles report that was presented to our President and Congress last summer.  It is a 6 point program to restore our economy and get us back on the right road:

1. Achieve $4 trillion deficit reduction by 2020.
2. Reduce the deficit to 2.3% of GDP by 2015
3. Sharply reduce tax rates, abolish the AMT and cut backdoor spending in the tax code
4. Cap revenue at 21% of GDP and get spending below 22% and eventually to 21%
5. Ensure lasting social security solvency
6. Reduce debt to 60% of GDP by 2023 and 40% by 2035. 

http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf

If you have not read this report, here is a link.  I encourage you to read it thoroughly and to lobby your representatives to follow these principles.  This is a bipartisan study and report—it is neither Democrat nor Republican.  It is what is good for America.  Congress appears incapable of acting so we the people need to start calling and lobbying our elected officials!