Q&A: recession over?,……?
Question by John S: recession over?,……?
Many economists are claiming that the recession is either over or about to end….They site home sales….manufacturing/industrial s….but my question is…what happens when there is no cash for clunkers program…and no first time homebuyer credit…do you think we will still improve or just head back down the pipe again…
I highly doubt there are people waiting in line at auto dealerships to get there hands on a car. Auto dealerships def cut production but there are cars avail….if 10 m were demanded and only 5 m were produced …there wouldnt be a car at any dealership…Also the recession will not end until unemployment number decrease…more houses stop entering foreclosure…and small business begins to rebound…This market rally wont last or go up any higher…The fundamentals are not there….. the market is only rising because investors are scared to miss the bottom so they shove money down the drain… most companies earnings were bc of streamlining …what happens now in the next quarter when they cant anymore…and the consumer still has barely returned…..
Best answer:
Answer by financegal27
Cash for clunkers has helped certain industries, but it isn’t a significant impact on all the inputs to GDP calculation which is what the definition of recession (negative GDP). Prior to June U.S. auto production had dropped to 5M units per year versus demand of 10M units per year. While cash for clunkers has caused inventory levels to become even more surpressed production still hasn’t increased. Production would have to increase 35% to meet the demand that existed BEFORE cash for clunkers began. Its likely that cash for clunkers will result in increased production, but not nearly to the levels needed to meet prior demand, and really won’t impact the very real inventory depletion in the sector.
Wholesale inventory levels bottomed in the first quarter and there are many indications in the industrial sector (autos are considered consumer discretionary sector stocks) that show that inventory depletion has ended and demand has increased. In the tech sector demand has begun to increase substantially and the outlook has turned quite positive which should help private capital expenditures to increase. The government stimulus programs really began entering the market in June and July and more than 75% of the stimulus dollars will not enter the market until 2010. As a result it seems reasonable that the component of government spending will continue to rise. Net exports continues to improve as well. As a result it seems very reasonable to suggest the recession has ended already. However a recession ending doesn’t mean we will feel it for several months because the factors of the economy that affect the average person all lag the end of a recession.
Additional Details Response: Actually you are missing the point, the reason production dropped to 5m units per year (on an annualized basis) is because previous production had been greater than the 10M demand, and there was excess inventory, the drop in production was in response to that, all the cash for clunkers program has done was decreased the excess inventory and significantly decreased the number of available used cars in the market. The statistics right from the industry reports show that in the first 7 months of 2008 the U.S produced 5,322,226 light vehicles versus 2,623,244 over the same period this year.Clearly showing that production dropped year over year by over 50%. This chart by the wall street journal http://online.wsj.com/mdc/public/page/2_3022-autosales.html clearly shows demand for light vehicles (cars and light trucks) bottomed in early 2009 at ~10M vehicles. I didn’t make this data up, its a fact. Even if demand falls back to normal levels it will still require the auto industry to increase production. Additionally early reported Q2 earning showed cost cutting drove earnings, but as of last week revenue growth was up 3.5% and operating costs were down 10%, so earnings are being driven by both revenue growth and cost cutting. The greatest cost for operations is wages which have stabilized and job losses are decelerating, so these cost declines are sustainable, because companies won’t begin hiring again until top line growth begins to accelerate at a significant pace, as long as revenue growth trends upwards it will drive earnings.
Second the definitition of a recession is 2 consecutive quarters of negative economic growth (i.e. the economy is shrinking) usually measured by GDP, by definition, once economic growth is positive the recession has ended. The unemployment rate ALWAYS peaks after the recession ends as shown in the chart provided at the link below. http://dshort.com/charts/unemployment-SP-Composite-since-1948-large.gif
Unemployment is a lagging indicator, the stock market is a leading indicator as shown in that chart.
Your question was if the recession was over, the recession, economic growth, unemployment, and the stock market are all driven by completely different things and they all have different cycles.
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Tags: over......, recession
Tags: over......, recession
January 22nd, 2012 at 8:53 am
I would put to much thought into what was said today, these bozo’s could not even see the housing bubble coming and now they are predicting the economy. This outlook is just another way of getting people excited and to move the market.