Recession is Official: Let’s Chart the Recovery
Post 1 of 3 in the Atlanta Real Estate Recovery series (energy, housing, credit).
Yesterday, Roger Tutterow Ph.D. and Dean of Economics at Mercer University gave his opinion to Sally’s Roundtable on the Recession of 08’ as it relates to Atlanta Real Estate. It was great to hear that it seems we are now at or past the bottom of the curve and the expectation is that in late 2nd Qtr and Early 3rd Qtr 2009, we will see a noticeable improvement in some key statistics. As this information will address a number of issues, I will publish this as a series throughout the week. Be sure to check back often to read the next update on the Atlanta Real Estate Recovery. Forbes magazine also projects job growth for Atlanta as a catalyst for recovery.
Here are some notes and facts as presented by Tutterow, along with my personal commentary:
Experts Announced: US Economy is in Recession
Not that we all would not believe it! Our friends on the news like to say a recession is when there are two consecutive quarter’s of negative growth. That is incorrect. A recession involves looking at the following sectors and establishing negative trends in all of them: Manufacturing and Trade Sales, Personal Income Levels, Non-Farm Payrolls, and Industrial Output. So while we know that a recession is upon us, it is usually months after the fact that the data will prove it.
What we do know is that this is not going to be as bad as the Great Depression but will resemble the deep recessions of the 80’s.
3 Contributing Factors of the Current Economy
1) Energy Costs
Since the Worldwide recession of 2001-2002, all international economies were growing at a staggering rate. The BRIC nations of Brazil, Russia, India, and China held some of the leading growth rates and thus created a higher demand for all commodities: Oil, Metals, etc. So as oil prices grew at staggering rates, speculation began to take place in the form of long positions on oil futures that pushed the price of oil from $100 to up to $150/barrel.
Now that the world is in yet another recession, oil prices have dropped to $45/barrel in a short period of time as demand has decreased and speculators eliminate long futures. The target price for oil may be $65/barrel.
This affects the economy in two ways: Driving costs and Manufacturing costs. It is estimated that $4.00/gallon gas in Georgia costs the average driver about $2,000.00 additional per year. If you have two wage earners in the family, this could easily double. So to break it down to real impact, out of each paycheck, the average employee will spend an additional $75 out of pocket per paycheck. This money was no longer spent on clothing, movies, eating out, etc. This had a tremendous effect on the state of the economy.
More importantly are the costs that we as consumers do not recognize. Second to labor costs, energy costs are extremely expensive in manufacturing. Converting raw materials and delivering goods has squeezed the bottom lines of most companies and could have resulted in higher prices paid at the register, had the price of energy remained at all time highs.
In the end, the single largest positive news is that we are looking better than worse. Oil and other commodity prices have dropped with the strengthening of the US Dollar and the lack of demand on the worldwide stage. This will make large differences in manufacturing costs, disposable income, and Industrial Output. In addition, the Consumer Confidence level will rise as predictability becomes more evident. Quite simply, who would by a home when the price of gasoline is $4.00/gallon and rising? Not many, I am sure as evidenced by recent sales data. Now that we are seeing $1.60/gallon is it reasonable to assume that some of the uncertainty is going away?
Read Part 2:Housing and Part 3:Credit
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