US Economy November Analysis

Global business sentiment is as dark as it has ever been since the 1930′s, although the free fall in confidence may be temporarily truncated by the Obama cabinet selections. Some are even fearing the worse of the glooming fear of the stock market crash of 1929.  Our survey results have been broadly unchanged since early November. Pessimism is pervasive across the world, with the only distinction being that Asian businesses are somewhat less nervous than elsewhere. Equipment and software investment did fall last week to a new record low, as did demand for office space and sales strength. Pricing pressures and interest rates are falling rapidly, although they are not yet consistent with outright deflation. The global economy is suffering a severe recession according to the business confidence survey results.

There was nothing but gloom and doom in the release of November U.S. economic reports. Economic headwinds are expected to have retailers expecting a slow holiday shopping season. But early indications per Black Friday only 1.6% lower than 2007. These are numbers we hope to see consistent through the remainder of the holiday shopping periods.

Construction spending for September came in at $1.060 trillion, a decline of 0.3% from August and down 6.6% from September 2007 as total construction—particularly for residences—continues to decline in the wake of a declining economy. We can expect the continued ripple effect of the home mortgage crisis to continue to hit the construction sectors.  Private construction increased by 0.1% for the month, but private residential construction fell by 1.3% from August to September. Total public construction also fell for the month. With the financial crisis still restricting credit to new projects, total construction will most likely decline in the coming months also. Expect construction related sectors to feel the first blow of initial first year recession waves.

The Institute for Supply Management’s manufacturing index fell 4.6 points to 38.9 for October. The larger than expected fundamental analysis decline puts the ISM index at its lowest level since the early 1980s. Conditions for manufacturing were very restrictive in October. Businesses’ and consumers access to credit was essentially cut off, leading many to reduce overhead, employment and production. The ISM index is consistent with an economy in a severe recession and opens the door for the Federal Reserve to lower interest rates below 1%. 

The U.S. personal income report revealed a bigger-than-assumed 0.3 percent October gain, although the increase followed sizable downward third-quarter revisions that were revealed in the third-quarter GDP report released Nov. 25. We also saw the expected 1.0 percent drop in October consumption, but a much-weaker-than-expected -0.5 percent figure in real (inflation-adjusted) terms, as personal consumption expenditure (PCE) chain prices fell “only” 0.6 percent in October. The real consumption shortfall implies a hefty 2.4 percent fourth-quarter rate of decline alongside a 7.1 percent rate of decrease for nominal spending, and a much-stronger-than-assumed 4.2 percent pop in the fourth-quarter GDP chain price measure, as falling import prices are slow to “pass through” to consumption. We now project a big 4.0 percent real GDP decline in the fourth quarter.

In summary the US Economy is right where we would expect it to be during this quagmire, and the Obama administration has done much to put a tunicate around the financial and stock market bleeding. But we can expect unemployment to grow to 11-12% and slowly start feeling the stronger waves of recession until consumer confidence and fundamentals have been restored. The NASDAQ and other majore indices are showing a modest recovery.