Nobody would claim the U.S. economy is healthy right now. After all, we are in the worst contraction since the Great Depression, and poor numbers are being posted for almost every economic indicator. But analysts are watching several key components of the economy that have stopped the free fall and appear to be stabilizing and poised for rebound.
Retail Sales Up Again
An example is the latest (June) retail sales report, released July 14, showing retail outlays up for the second consecutive month. The increase was hardly stunning -- June sales were up 0.6 percent, coming after an even smaller gain of 0.5 percent in May. But before these increases, retail sales had declined for six consecutive months in the second half of 2008, and bobbed up and down in the first part of 2009 (see table at Economy@W. P. Carey). For the first half of 2009, retail sales were up in four out of six months.
Personal consumption expenditures overall show a similar pattern. After dropping off a cliff in the second half of 2008, monthly personal consumption so far this year contracted only in March. Analysts will be watching for the June personal consumption data, set to be released August 4th.
Although it appears that consumer spending has found a trough and may add to growth of Gross Domestic Product in the third quarter and beyond, the gains will be tepid at best. Consumers have taken advantage of their reduced withholding to add to savings rather than splurging. And with unemployment rising, portfolios weakened, and home values still in decline, consumers are shying away from big ticket items such as appliances, furniture, and autos.
However, auto sales figures also appear to have stabilized at a low level, along with home sales and home permits. Analysts expect very modest gains in these categories in the second half of 2009.
The recovery is by no means here, but it may be near. Important indicators of economic performance such as industrial production and workweek hours are still in decline. On the other hand, the Institute for Supply Management (ISM) indexes have increased throughout 2009. The available indicators may best be described as mixed, but the free fall seems to be over.
W. P. Carey Round Number Forecast Improves
Because several key indicators appear to have bottomed out, the W. P. Carey outlook for 2009 has improved somewhat this month. Although Gross Domestic Product is still projected to decline for 2009, the contraction will be -2.5 percent, instead of -3.0 percent as foreseen last month (see forecast table atEconomy@W. P. Carey).
Consumer spending will increase in the second half of 2009, but will be down for the year by 0.5 percent compared to 2008.
The economy will grow in 2010, although unemployment may remain high. Real GDP will be up by 2.0 percent, boosted by a similar gain in consumer spending. Business spending on equipment and software will increase by 7 percent, but expenditures for nonresidential structures (including retail and office space) will decline. Exports will not be a source of growth, since the U.S. economy is expected to recover sooner than the rest of the world. State and local government spending will not add to GDP, and by the end of 2010 much of the federal stimulus spending will be over. Whether credit conditions will have improved enough by 2011 to allow private sector spending to propel the economy forward into a sustained recovery remains to be seen.