It appears quite likely that we are going to get a positive print on the Q3 GDP number along with a very likely call that the recession ended sometime this summer (although the NBER, who calls recessions, will likely not make that call for a while). Much of this surge in GDP will come from inventory builds, which are the result of virtually no consumption or production since fall of last year (at some time you have to restock shelves if you want to sell stuff), coupled with cash for clunkers pulling a bunch of demand into this quarter right at the time when automakers release their new model year cars. These factors should push GDP well into the positive range for Q3 (I am looking for a 3%+ print). However, the future really isn't looking all that rosy.
I want to state up front that I am not a doom and gloomer. I do not believe we are going to retest the March market lows, nor do I believe that the economy is going to collapse with 15% U-3 unemployment or the like. What I do believe is that we are headed towards a jobless recovery at best and at worst a double dip that could start as early as December of this year with a horrible retail Christmas.
Lately we have gotten a bunch of bad economic data. Data that appears to show that while the economy may have indeed bottomed, it is not gearing up for any substantial or sustainable recovery that would either create jobs or income.
First up were unemployment claims this week. Not only was the initial claims number much higher than expected, but the more important 4-week moving average has now ticked back up after a period of leveling off (Link to chart). This is coupled with again higher continuing claims and even worse data on expiring benefits that shows not only have record numbers of people been unemployed for more than 27 weeks (that was up over 500,000 in July alone), but that people are beginning to exhaust even the extended benefits that were passed earlier this year. Also, some here have recently decided to start citing the unadjusted weekly claims instead of the adjusted claims (because the data suits them better now), however, the unadjusted 4-week average is even worse that the adjusted one.
Next up we have the Leading Economic Indicators (LEI's). While these still appear to be positive (which normally is good), we have to examine the underlying data to realize that a huge portion of the gain has been caused by the spread between the 10-year treasury and the fed funds rate, which is a joke considering the the fed funds rate is 0. This essentially guarantees a large positive contribution to the LEI's and reduces their reliability (especially considering this number was positive even back at the height of the panic in Feb/March). The other factor in the indicators that I am highly suspect of is the average workweek for manufacturing. Considering that manufacturing is such a small part of our employment base and that this number never dropped below 39 hours/week this year (and is at 39.8 now), I am not sure this measures what it is supposed to anymore. These two factors plus the stock rebound accounted for virtually the entire positive number this month, with all the other factors washing each other out. This is not a report that induces great confidence in me that a recovery is coming.
The worst of all the data coming out though comes from the US consumer. Personal income was down 1.3% last month and again consumption is falling as well. This is coupled with a rising savings rate (now over 5%) that is unlikely to revert back to the near o% levels that drove most of the economic expansion (as mild as it was) over the last decade. Without the consumer making a major comeback, a sustainable recovery is going to be difficult at best.
Finally we have the duo of interest rates and oil prices. While interest rates have dropped recently, remember that the fed is still manipulating this market through purchases of longer dated treasuries, a program that will end by then end of October. Also, it is only a matter of time before people (read foreign countries) start demanding a higher return on bonds for debt that looks more and more likely to be paid back with lower valued dollars. Oil is another story all together, as every piece of somewhat positive data, day of dollar decline (many more of these are in the future), and stock market rally seems to push oil prices higher, which will directly hurt any nascent US economic recovery and further push the consumer towards savings.
The above are some of the reasons that I believe we are headed towards another "jobless recovery" and possibly a double dip that would begin in December 2009 or Q1 2010.