We are not there yet, the US economy is still deep in recession; there’re undoubtedly tougher times to come, especially in Japan and Australia later in the year, but there’s also a growing belief that the American economy’s rapid descent into recession is slowing.
The final estimates for the slump in the December quarter were confirmed overnight with a slide of 6.3%, slightly worse than the 6.2% in the previous forecast.
This quarter won’t be much better with economists forecasting a contraction of 5%-6%.
Unemployment remains a problem with figures overnight showing another 600,000-plus people received first time jobless benefits last week: the number of people receiving benefits for four weeks or more was another record: 5.56 million.
The market keeps rising: when trading closed Friday morning, our time, Wall Street was up again and the rebound since the low on March 9 was past 20%. That’s in just two and a half weeks.
Some signs from the economy are suggesting things will get worse before they get better, but there’s also signs conditions are steadying; importantly they are coming from the US housing sector, which set off the whole financial crisis.
For the slump to steady, the key has always been, ‘fix housing’. It’s not fully fixed, but demand is definitely firmer than it has been for over a year.
Demand is on the rise for housing at current ‘cheap’ levels, interest rates are lower than they have been and if the sudden upsurge in demand continues, the damaging fall in prices will slow, which would be a dramatic improvement on the situation in January when new home starts and sales hit record lows, for instance.
Housing was where the problem started with defaulting subprime mortgages that had been oversold.
It dragged the rest of America and the world into the hole, helped by dodgy bank executives, financial failures and worse.
Now housing could be on the verge of stabilising the slump. Now people are talking ‘turnaround’.
That’s premature, just as it was in November and January, but there are better signs of a steadying influence emerging than then.
Business inventories fell in February for a second successive month; durable goods orders rose and new home sales also rose, joining surprise rises in sales of existing houses, plus a jump in new home starts and permits.
Stocks of home builders, suppliers and other consumer related shares continued to rise: banks were more circumspect.
Commodity prices fell, led by oil. American interest rates were nervy though as a big US Treasury bond auction saw yields higher than forecast, while in Britain a similar auction failed because of insufficient support.
The moves in the bond markets were enough to get analysts wondering about the other news, which saw US analysts chattering about the economy ‘stabilising’ and finding ‘the bottom.
The flow of economic news has suddenly turned more positive than it has been for a year, certainly since before the terrible days from mid-September when Lehman Brothers collapsed and the bottomless pit known as AIG was rescued.
But there are the now usual caveats to this outburst of bullishness.
Unemployment is rising: in Michigan, the capital of the near-bankrupt US car industry, the jobless rate is now at a huge 12%; in California, its 10.5%, and house prices there continue to weaken: Californian real estate agents say the median price of homes sold was down 41% (yes 41%) in February on a year earlier, and 85% of all home sales last month were from foreclosure auctions.
From overseas German business confidence fell to its lowest level in March since 1982 and Japan’s terrible February export figures have economists worrying that the country is headed for a depression, such is the rate of decline being seen.
Britain’s retail sales fell 1.6% in February from January and were up only 0.4% over the year, the smallest rise for 13 years.
Now economists in Tokyo say Japan looks like seeing 1st quarter growth shrink by more than the 3.2,% quarter on quarter figure seen in the December three months (an annual rate of just over 12%).
The near 50% fall in exports was the steepest fall since 1957 (based on the two types of methods Japan has used to compile trade figures in the past half century).
Like China in the same month, Japan saw a very sharp rise in the rate of fall of imports as the economy contracted: down a record 43%. Economists say that intra-Asian trade is plunging at rates approaching the fall in exports to the developed west.
That’s a clear sign that China, which is the biggest importer of manufactured goods and parts from its fellow Asian economies, is not doing well.
In Europe, while German business confidence slipped to its lowest since reunification of the country in 1990, there were glimmers of hope elsewhere in the eurozone with a survey of purchasing managers in the area revealing a slowdown in the rate of fall in sentiment.
It does point to a 10th successive month of contraction, but the plunging nature of the fall has stopped, for the time being at least.
In the US the fall in business inventories was taken as the first clear sign that business has cut its cloth to fit the reality of the economy and is now positioning itself to start rebuilding stocks by lifting production in coming months.
Business stocks fell 0.9% last month, after falling 1.1% in February, the first back to back fall since 2003.
Durable goods unexpectedly rose 3.4% in February on a rebound in demand for machinery, computers and defense equipment.
It was the biggest rise in more
