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Monday, 9 February 2009
Some call a ‘bottom’, others doubt
Mr. Brusca said, however, that people may be surprised as much by the upturn as the downturn. ‘Sharp recessions tend to have sharp recoveries, that’s the good news.’
Even as economic indicators point to an increasingly brutal recession, some analysts see tentative signs of a bottom in sight for the worst economic slump in decades.
Few economic forecasters are calling for a quick improvement, but some argue that data point to stabilisation in the housing market, credit flows and even the troubled car sector.
The sharp rise in unemployment is worrisome but this often peaks near the end of an economic downturn, said Robert Brusca at FAO Economics.
‘Typically, you get these sharp spikes at the end of recessions,’ Mr. Brusca said. ‘It’s a little early to make this call but I’m suggesting it may be appropriate to think of the end of the recession by mid-year.’
Mr. Brusca said his outlook was unfazed by Friday’s news that the US unemployment rate surged to a 16-year high of 7.6 per cent in January as 598,000 jobs were lost.
‘The last three months have been terrible, but service sector losses are not getting worse,’ he said. ‘In manufacturing, losses are probably due to piled up inventories.’
The housing market, which ignited the global economic firestorm with the bursting of the US real estate bubble, is also showing some signs of steadying, say some economists.
‘The worst housing downturn in memory will stabilise by the end of this year,’ said Economy.com’s Celia Chen. ‘More than three years since the market began correcting, inventories are flattening, prices are coming back down to earth, and sales are approaching stability.’
The credit crunch that has choked off economic activity too is easing somewhat, said Milton Ezrati, senior economist at Lord Abbett.
‘After months in which credit markets have remained effectively frozen, tentative signs of a thaw have at last emerged,’ Mr. Ezrati said. ‘Today’s signs are, of course, far from conclusive. But if today’s indicators, to paraphrase Winston Churchill, fail to mark the end of credit problems or even the beginning of the end, they certainly should mark the end of the beginning.’
Mr. Ezrati said declining mortgage rates would help ease the housing crisis and that even corporate borrowing rates have eased, giving firms better access to much-needed credit.
The car industry suffered a horrendous January with a 37 per cent drop in sales compared to a year ago. But even with some carmakers on the brink of failure, some see a ray of hope.
Himanshu Patel, an auto analyst at JPMorgan Securities, said virtually all of the decline came from sales to rental fleets, which were frozen with most carmakers shutting down plants in January. ‘Retail demand appears to have stabilised.’
The staggering drop in sales that began in October, Mr. Patel said, seems to have steadied. Month- over-month comparisons showed the annual retail sales pace excluding fleets at 8.8 million car in January, he said, up from 8.2 million in December.
The rise is ‘consistent with comments we had heard around mid-January from various auto finance companies about double-digit sequential increases in loan applications’, he said. Overall sales ‘could tick up somewhat over the next few quarters as retail sales are aided by efforts to aid credit and fleet sales begin to resume after a very slow January’, he added.
Still, many analysts say it is too soon to say the worst of the crisis is over.
Avery Shenfeld, senior economist at CIBC World Markets, said he is not ready to call a ‘bottom’.
‘Will we see growth from this point forward? I doubt it,’ he said. ‘It’s likely that we’ll see more declines in the months to come.’
Mr. Shenfeld said that in the critical labour market, ‘there are still many layoffs that were announced but not yet put into effect, and when they are we’ll see more declines in consumer spending’.
Julia Coronado, senior economist at Barclays Capital, said Friday’s data on job losses suggested the economy remains on a downward path. ‘There is a possibility that employers are reacting quickly to get to the bottom faster but we don’t know,’ she said. ‘We’re right in the middle of a very deep recession.’
A large number of economists expect a recovery in the third or fourth quarter of 2009, aided by a massive government stimulus expected to clear Congress and new efforts by President Barack Obama’s administration to stabilise the banking sector.
Ms. Coronado said she expects a tepid recovery due to ‘deep and long-lasting’ problems. ‘We don’t see anything robust, but we do think the economy will return to modest growth at the end of the year.’
Mr. Brusca said, however, that people may be surprised as much by the upturn as the downturn. ‘Sharp recessions tend to have sharp recoveries, that’s the good news.’
1 comment:
Some call a ‘bottom’, others doubt
AFP
9 February 2009
Even as economic indicators point to an increasingly brutal recession, some analysts see tentative signs of a bottom in sight for the worst economic slump in decades.
Few economic forecasters are calling for a quick improvement, but some argue that data point to stabilisation in the housing market, credit flows and even the troubled car sector.
The sharp rise in unemployment is worrisome but this often peaks near the end of an economic downturn, said Robert Brusca at FAO Economics.
‘Typically, you get these sharp spikes at the end of recessions,’ Mr. Brusca said. ‘It’s a little early to make this call but I’m suggesting it may be appropriate to think of the end of the recession by mid-year.’
Mr. Brusca said his outlook was unfazed by Friday’s news that the US unemployment rate surged to a 16-year high of 7.6 per cent in January as 598,000 jobs were lost.
‘The last three months have been terrible, but service sector losses are not getting worse,’ he said. ‘In manufacturing, losses are probably due to piled up inventories.’
The housing market, which ignited the global economic firestorm with the bursting of the US real estate bubble, is also showing some signs of steadying, say some economists.
‘The worst housing downturn in memory will stabilise by the end of this year,’ said Economy.com’s Celia Chen. ‘More than three years since the market began correcting, inventories are flattening, prices are coming back down to earth, and sales are approaching stability.’
The credit crunch that has choked off economic activity too is easing somewhat, said Milton Ezrati, senior economist at Lord Abbett.
‘After months in which credit markets have remained effectively frozen, tentative signs of a thaw have at last emerged,’ Mr. Ezrati said. ‘Today’s signs are, of course, far from conclusive. But if today’s indicators, to paraphrase Winston Churchill, fail to mark the end of credit problems or even the beginning of the end, they certainly should mark the end of the beginning.’
Mr. Ezrati said declining mortgage rates would help ease the housing crisis and that even corporate borrowing rates have eased, giving firms better access to much-needed credit.
The car industry suffered a horrendous January with a 37 per cent drop in sales compared to a year ago. But even with some carmakers on the brink of failure, some see a ray of hope.
Himanshu Patel, an auto analyst at JPMorgan Securities, said virtually all of the decline came from sales to rental fleets, which were frozen with most carmakers shutting down plants in January. ‘Retail demand appears to have stabilised.’
The staggering drop in sales that began in October, Mr. Patel said, seems to have steadied. Month- over-month comparisons showed the annual retail sales pace excluding fleets at 8.8 million car in January, he said, up from 8.2 million in December.
The rise is ‘consistent with comments we had heard around mid-January from various auto finance companies about double-digit sequential increases in loan applications’, he said. Overall sales ‘could tick up somewhat over the next few quarters as retail sales are aided by efforts to aid credit and fleet sales begin to resume after a very slow January’, he added.
Still, many analysts say it is too soon to say the worst of the crisis is over.
Avery Shenfeld, senior economist at CIBC World Markets, said he is not ready to call a ‘bottom’.
‘Will we see growth from this point forward? I doubt it,’ he said. ‘It’s likely that we’ll see more declines in the months to come.’
Mr. Shenfeld said that in the critical labour market, ‘there are still many layoffs that were announced but not yet put into effect, and when they are we’ll see more declines in consumer spending’.
Julia Coronado, senior economist at Barclays Capital, said Friday’s data on job losses suggested the economy remains on a downward path. ‘There is a possibility that employers are reacting quickly to get to the bottom faster but we don’t know,’ she said. ‘We’re right in the middle of a very deep recession.’
A large number of economists expect a recovery in the third or fourth quarter of 2009, aided by a massive government stimulus expected to clear Congress and new efforts by President Barack Obama’s administration to stabilise the banking sector.
Ms. Coronado said she expects a tepid recovery due to ‘deep and long-lasting’ problems. ‘We don’t see anything robust, but we do think the economy will return to modest growth at the end of the year.’
Mr. Brusca said, however, that people may be surprised as much by the upturn as the downturn. ‘Sharp recessions tend to have sharp recoveries, that’s the good news.’
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