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Did the 20072009 national recession ever really end
The growth rate remains modest. That’s the latest word on the Greater Grand Rapids industrial economy, according to data collected in the last two weeks of August.
New orders, our closely watched index of business improvement, remained positive but edged lower for the third month in a row to +13 from +17. In a similar move, the production index retreated to +17 from +21. Activity in the purchasing offices, which we report as our index of purchases, eased modestly to +21 from +23. July’s uptick in the index of employment was short-lived, and backtracked to +26 from +37 in August. Ominously, 8 percent of the respondents reported reductions in employment, the most we have seen in six months. Just as in July, our local statistics continue to be stronger than the rest of the country. The outlook for the rest of the year now looks questionable, however.
Turning to local industry groups, both the office furniture and automotive parts producers are generally reporting business conditions to be the same: not declining, not advancing, just holding on to recent gains. The annual automotive uptick for the 2012 model year is still keeping business conditions in the black. With auto sales improving but the economy softening, production schedules for the rest of the year are unknown. For the fourth month in a row, industrial distributors came in fairly positive. Just as in July, some capital equipment firms reported a decline in business conditions, while others remain stable. Although the auto suppliers and the office furniture firms are still keeping our local statistics positive, several firms are speaking of an impending slowdown.
At the national level, the results are either flat or modestly negative, depending on interpretation. The Sept. 1 report from the Institute for Supply Management, our parent organization, noted that new orders slid to negative territory for the first time in more than two years to -3. ISM’s production index fell to the break-even point of 0, down from +4 last month. The employment index remained positive but retreated to +7 from +11. ISM’s overall index of manufacturing eased to 50.6 from 50.9. So much for hopes of growth picking up in the second half of the year. Even the White House says that 9 percent unemployment will continue through most of 2012.
Since last month, the economic news has turned jaded. Two weeks ago, jobs growth came in at zero. The bad news came Aug. 5 when Standard and Poor’s downgraded the U.S. debt for the first time in history. This was not totally unexpected, but it created a barrage of rhetoric. What went almost unnoticed is that the Federal Reserve and numerous economists have downgraded their estimates for economic growth for the last half of the year — some to near zero. Consumer confidence fell again, and remains far below the levels of five years ago. For the first time since the beginning of the recovery, the Canadian GDP turned negative by 0.4 percent. The European monetary crisis remains unresolved. From 10 percent in April, Michigan unemployment has ratcheted up to 11.9 percent. Our local surveys remain positive but have continued to flatten. In short, the specter of a double-dip recession has re-entered the realm. Current odds of a double dip are about 70 percent.
To review history, we have been talking about a double dip practically since the recovery began more than two years ago. The generally accepted “formal” definition of a recession is two or more continuous quarters of negative economic growth as measured by GDP. Although this is the generally accepted definition, other economists complain that GDP is an abstraction to most people, and the level of unemployment should somehow have a role in the definition, especially in determining when the recession is over. Furthermore, it takes several weeks after the end of a quarter to compute GDP, so a recession cannot officially be declared until about seven or eight months after it begins. The first quarter of 2011 grew by only 0.4 percent and the second quarter by 1 percent. The results for the current quarter, which began July 1, will not be known until late October. Based on the tepid results from our most recent quarters, it is not much of a stretch to imagine that the third quarter could show a negative GDP. A nega
tive fourth quarter would make the recession official.
Recessions in the past have tag names associated with their root cause. There was the dot-com bust recession, the Arab oil boycott recession, and more recently, the financial and housing collapse recession. If we are now entering another recession, the root cause will be based on a lack of confidence. Recently, some of our key measures of confidence have retreated to the same levels of mid-2008. Consumer confidence leads the way down, and small business confidence is not far behind. The segments of this negativity include:
- The disheartening “debt ceiling” battle a few weeks ago.
- The high unemployment rate with no sign of significant improvement.
- Concerns over the European debt situation.
- Concerns over our own sovereign debt situation and the impact that it will have on the future.
- The weak housing markets.
- The uneasy feeling that the tax and regulatory environment will remain unclear until after the national election 14 months from now. This could mean another 14 months of gridlock.
Turning to some positive news, the auto industry posted a gain of 8 percent for the month of August, despite predictions that sales would be flat. Leading the advance was Chrysler at 28 percent, followed by General Motors at 18 percent and Ford at 11 percent. Two of the Japanese name plates continued to suffer from lack of supply, with Honda losing 25 percent and Toyota dropping 13 percent. Nissan bucked the trend and posted a 19 percent. The SAAR rate fell to 12.13 million vehicles per year, down slightly from 12.24 million in July and still well below the 16.5 million rates of just a few years ago.
Although it is hard to find good news on the housing market, the Aug. 30 report from Case-Shiller showed that the home price index was up by 3.6 percent in the second quarter of 2011 after having fallen 4.1 percent in the first quarter. Nationally, this puts home prices back to their 2003 levels. Although we will take good news any place we can find it, it is obvious that the housing crisis is still far from over. Nearly 40 percent of all sales are still “distressed” in the form of short sales, bankruptcies and foreclosures.
In summary, softness in the world economy is spilling over into our domestic economy, and we are not immune. Our local economy is still holding positive, but we are not an island. Without a trigger like the collapse of the euro or a terrorist attack, it looks as though the absolute best we can hope for is a period of very slow growth. The statistics may dance back and forth from incrementally positive to negative. Unemployment, which has improved little since the 2007-2009 recession, may drift higher. If we encounter two consecutive quarters of negative GDP growth, it will fit the technical definition of a recession and would probably be one of the shallowest recessions in history. Because GDP is an abstraction to most of us, the economy would not be noticeably worse than it is now, given our already low current GDP. As we are all aware, the national surveys show that most people feel the 2007-2009 recession never ended.
Brian Long is director of Supply Chain Management Research, Seidman College of Business, GVSU.