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Another View on the Economy

January 3, 2009 RSS Feed Print

Ugly news from the folks at Macroeconomic Advisers:

The latest economic data are consistent with our estimate that GDP declined at nearly a 6% rate in the fourth quarter and will decline sharply in the first quarter of 2009. However, some data — specifically on equipment investment and consumer spending — have been stronger than expected. On December 24 we updated our base forecast, which called for GDP to decline at a 5.8% rate in the fourth quarter (about ¾ of a percentage point higher than the 6½% rate of decline in our tracking estimate from December 16), followed by a 3.5% rate of decline in the first quarter. We assume that a substantial fiscal stimulus package will contribute to a gradual turnaround, with positive GDP growth beginning in the second quarter (1.0%). For all of next year, we forecast GDP to rise 0.4%.

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Maybe you should start doing 'Dude, where's my depression?' posts.

Bill of MT 3:29PM January 04, 2009

I'd like to be the first to congratulate President Obama for fixing the economy.
The economy will eventually turn around despite government interference, not because of it. And the media will ballyhoo Dear Leader and declare him the savior of the global economy. They will print endless cover photos of him with a halo over his head, walking on water, etc.
So, I'd like to jump the gun and be the first in line to declare the global economy fully recovered, all thanks to President Barack Obama.

John of PA 1:09PM January 04, 2009

The housing bust is the result of banking regulations, tax policy and business lobbying directly too much investment into real estate. With inventories far beyond what buyers can consume for the foreseeable future, do not look to a housing recovery for 3-5 years--and that presumes that the economy has otherwise recovered to put people back to work. With sustained deep unemployment (10-12%), that 3-5 years could stretch out to 8-10 years before buyers could once again afford homes. That also assumes that the credit markets have fully recovered and that interest rates haven't skyrocketed due to a long bond price collapse spurred by the Fed's inflationary monetary policies. It also assumes that taxpayers aren't taxed into poverty by the broken finances of their cities, counties, states and federal government. Yep, there are truly many reasons to be optimistic about the housing market!
As to the stock market valuations, analyst earnings estimates have been dropping like stones for a year for both 2008 and 2009 S&P earnings. The last number I saw was $41+ for 2009, putting the current S&P 500 forward P/E at around 23 and the November 20 low P/E at 18. Now, does anybody actually believe that the market is going to bottom at a P/E of 18? Historically, the P/E at major market lows has been 12 (or an even lower 8-10) which would suggest an S&P 500 bottom value of 500--or another 47% down from Friday's close (or worse, but who would believe that the S&P 500 could sink to, say, 330?).
Batten down your hatches. This isn't over by a long shot in 2009.

PD Quig of CA 11:04AM January 04, 2009

Another View on the Economy

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