200908 Economic Report - The Andersen Monthly Economic...

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The Andersen Monthly Economic Report Volume 1, Number 7 August 7, 2009 ANDERSEN ECONOMIC RESEARCH INC Tel: 512-243-7823 E-mail: andersenpeterr@gmail.com AN ACCUMULATION OF GOOD NEWS There have been a number of positive surprises. Real GDP has stopped declining in the U.S. and Canada this summer. China’s economy shows a spectacular rebound – output increased at a 16% annualized rate in the 2 nd Quarter. Commodity prices have rebounded to a 9-month high. Credit market problems are closely related to the inability of Americans to meet mortgage payments. Fortunately, the U.S. housing cycle appears to be bottoming. House prices are close to stabilizing. Signed purchase contracts registered a 5 th consecutive monthly increase in June. There is hope that U.S. mortgage foreclosures can be contained, especially if the mortgage mitigation system is improved. Financial markets are opening up again. The USD 3-mo. Libor is down to a new record low of 46 basis points. The TED spread (a measure of credit risk) is back to normal. Tighter credit spreads on corporate bonds mean an increased willingness to take on risk. Bond defaults have surged but high-yield spreads are below 10% for the 1 st time since June 2008. They are still elevated and still in line with the highs reached in previous default cycles. However, they were at an all-time high of around 22% in December. The stock market has followed this improvement in debt and credit markets. The uptrend has continued, with the S&P/TSX trading close to 11,000 in early August. It is up by 47% from its low of 7,480 reached on March but is still well below its May 2008 peak of 15,073. Good news is always welcome. However, the word “recovery” is dangerous. Thanks to massive government stimulus in the U.S. and Canada, we are experiencing stabilization at low levels, in output and spending. We are not returning to normal and sustainable growth rates. The operating levels of activity in 2006 and early 2007 will not return anytime soon. The good economic news is mainly the result of government action. The U.S. economic stimulus is now running at its peak. However, it will begin to diminish this fall and will disappear after next spring. About 75% of China’s growth is government induced. The credit flow from shadow banking system is still shut-down and the U.S. balance sheet work-out is not over. . EMPLOYMENT GROWTH INDEX 98 100 102 104 106 108 110 112 114 116 118 120 122 Jan- 99 Jan- 00 Jan- 01 Jan- 02 Jan- 03 Jan- 04 Jan- 05 Jan- 06 Jan- 07 Jan- 08 Jan- 09 Jan. 1999 = 100 CANADA UNITED STATES Global World trade is leveling-off Fragile Q/Q global growth reappears Government actions are the driver Private sector demand still slumping China’s current account surplus cut in half Shrinking German & Japanese c/a surpluses Surplus countries’ domestic demand weak Not filling gap left by retreating U.S. consumers United States Wealth losses exceed $13 trillion
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This note was uploaded on 04/22/2010 for the course MANAGEMENT ADM 1301 taught by Professor Audi during the Spring '08 term at University of Ottawa.

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200908 Economic Report - The Andersen Monthly Economic...

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