Markets are of the view that the recession is over and the chances of double dip have reduced significantly. Really? Lets just analyse some of the key data points people are celebrating about.
First data point-GDP; if one looks at pure GDP numbers of the US, sure they look fancy as they seem to suggest a 3%+ growth from the base but the point to be noted is that 75% of this came purely on the back of re-stocking. The largest weight was added by Manufacturing, which was nothing but pure re-stocking as inventories.
Secondly everyone seems to suggest that retail sales are back on track and the great American consumer is back in the market. My point is, last year in May-June, the savings rate to GDP of US was at a historic high of 6.4%. Now this coupled with steriods such as cash for clunkers, tax rebates on home purchases etc, the typical consumer was fooled into believing that things are getting better and started to spend the pot of cash in his pocket. This resulted in the savings rate dropping drastically to 2.4% in June 2010.Now that the steriods (read: stimulus) are loosing sheen and the consumer has spent the cash he could, will he really come back and buy?
Next lets talk about unemployment. Again at almost near all time high. If one
observes the pattern of last six months, there has been no improvement at all, in spite of the fact that this data includes part time workers etc. The fear of loosing jobs are back to the post Lehmann explosion days. Sentiment is weaking faster than ever. The jobs data last week proved that the private sector is still skeptical on hiring as just 4000 jobs were added. Now the next expectation is for retail sales to slow down.
And best of all data is the housing data, which people dont tend to bother about because of the typical herd mentality. Just because everyone is buying, we must also buy! This data that will worsen even further. Not like its any better than it was in 2008. Latest numbers show that the foreclosures are back to record breaking days with May posting an increse in every state. The 8000$ tax credit program has ended and whatever few houses were sold due to this will also cease to exsist now. Although this has not been reflected in the data yet as the number being reported until now includes the data of people who had applied for loans to avail of the tax credit but are still awaiting the final purchase. Once this backlog is cleared, the numbers will fall sharply. Interestingly if one were to observe, the amount of foreclosed homes lying with banks, at current selling trends will take them close to a decade to clear off (assuming we are not adding any more to this!). Hence the supply is going to be phenomenal in housing and I do not see any recovery in the housing market for years to come.
So just how much can we rely on pure "lies"(read: statistics)
Good stuff laid
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