Archive for the ‘Economy’ Category

The 2011 Economic Update: A Dark Surprise, A Robust 2012

May 13, 2011

May 13, 2011

David Albrecht, Director, International Programs & Business Research

The Chamber’s 2011 Economic Update is out as of this morning, and as in all economic forecasts, there’s plenty to chew on, applaud or disagree with.

A key finding is that the region’s unemployment hole was far deeper than first thought.  MARC had estimated metro job losses at 61,000 from peak to trough – that is, from the fourth quarter of 2007 to the first quarter of 2010.  The estimate now, after revisions in federal workforce data, is half again as bad – 93,000 total jobs lost metro-wide.  Significantly, these are not only hourly and salaried employees, but proprietors as well, as the Great Recession and its aftershocks took down small businesses while decimating workforces in larger firms.

In addition, while 2008 may have been the first stomach-levitating drop at the top of the roller coaster, and 2009 the screaming descent, what stands out was the unpleasantness of the bottom of the slope.  2010 was a flat-out lousy year for the area’s economy.  While GMP (Gross Metropolitan Product) rose by 1.7% between Q4 2009 and Q4 2010, the U.S. economy as a whole grew 1.1% faster, with local job creation lagging even our sluggish GMP growth.  Between Q4 2009 and Q4 2010, the forecast estimates that 700 net jobs were created metro-wide.  In fairness, I should mention that from the actual bottom of the recession early in 2010 to the same Q4, the Kansas City MSA did add about 3,400 new jobs in all – better than the stat above might lead you to believe, but only about 10% of projected new jobs for 2012.

As in years past, the forecast splits the next two years into two possible outcomes – baseline and slow-growth.  The latter rests on an assumption you’ll know all too well if you’ve had occasion to buy groceries or fill up the car recently – continuing political turmoil in the Middle and resulting high energy prices through the end of 2011.  The Producer Price Index out on May 12th did show prices for finished goods up 0.8% during April, as fuel prices accounted for much of the month’s substantial increase in retail spending – not what America’s retail sector had in mind.

The good news, though is out there, and it’s substantial.  Labor force totals from BLS show an additional 10,000 jobs added during February and March metrowide, and these totals are consistent with recovery trends seen in the past ten years.  Better yet, the forecast calls for expansion in the metro economy at a 3.8% rate by the end of 2011, with regional expansion outstripping even national GDP growth during 2012.  Job projections are positive as well, with 22,000 jobs created in 2011 and 32,000 in 2012.  Energy costs will remain the biggest of several wild cards.

If’ you’d like to download your own free copy of the Economic Update (if you’re a Chamber Member, that is), then head on over to the Chamber Store on our website.

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Bruised Commodities And The Expectations Game

May 6, 2011

That loud “crunch!” sound you heard on Thursday was the sound of falling commodity indices.  For trading ending May 5th, a wide range of commodity prices tumbled, with declines ranging from “not too bad” to “that’ll leave a mark.”

Gold, which hit a YTD high of $1551 on May 3rd, fell as low as $1462, WTI oil dropped below $100 for the first time since Saint Patrick’s Day and silver collapsed by 30.3% from its nominal 31-year high on April 25th.

Whence Thursday’s full-on whacking?  Well, it’s complicated . . . not to mention volatile.

For starters,the European Central Bank left interest rates unchanged at 1.25%, kick-starting a faltering US dollar.  First-time unemployment claims came in much higher than expected, at 474,000 and ADP projected a meager 179,000 new private-sector jobs in April.  Then the DOE reported the biggest oil stockpiles since October.  This prospect – a slow-moving recovery in which Americans cut spending on energy (and by implication cut spending on travel, discretionary spending and more) – was enough to spook energy traders, just as the CME Group imposed new margin restrictions on what had been a white-hot silver market.

That was Thursday and even Friday’s surprisingly strong jobs report wasn’t enough to stop the fibrillation.  After brief rallies, oil closed under $100, and silver lost another couple of bucks as stocks rose.

The unpleasant truth, at least for silver, is that the kind of unusual price spike we’ve seen over the last few months is just that – unusual.  In fact, it’s extremely unusual.  Plotting out nominal silver prices from January 1975 to May, 2011 reveals two – and only two -superspikes in silver prices – during the winter of 1979-80 as the Soviets invaded Afghanistan and the current frenzy.  And this sketch doesn’t even try to adjust today’s prices for inflation.

Gold’s recent history is a bit different.  The same date range produces a similar story at the end of the 1970s.  But the spike-and-collapse track wasn’t comparable.  Silver may have fallen to 1/10th of its peak price, but gold fell only to about half of its peak, and then swung gently to and fro in the $300-$500 range for more than twenty years.   Only in the mid-2000s did the big climb begin, and even then it contained plenty of volatile fizz.

What were the expectations of those who rushed into precious metals over the course of the past six months?  A knee-jerk response might be “a quick buck”, judging by the number of full-page newspaper spreads, online ads and radio spots flogging the value of gold and silver as investments.

Naturally, there’s more to it than that.  As a hedge against inflation, precious metals can and do make sense.  And despite the most authoritative of pronouncements, inflation – from the gas pump to the dairy aisle – is very real.  But as the past 35 years show, at least for individual investors there have really been only two strategies – buy and hold for a very long time in the case of gold, or hang on for the ride of your life after waiting even longer in the case of silver.