6/15/2010

Friends and Colleagues

Our “recovering” economy continues to roll ahead at a modest pace, with some bumps looming in the road ahead.
This week our friends at Wells Fargo Securities (WFS) share with us some insights on the economy today and in the months and year ahead.

First, Some Thoughts from Fed Chairman Bernanke

“The recovery in economic activity that began in the second half of last year has continued at a moderate pace so far this year.”
Momentum continues in consumer and capital spending.
Restraints exist in housing activity, non-residential construction outlays and state & local budgets.
The Fed expects real GDP to grow at a ~3.5% annual pace in 2010 and at a somewhat faster pace in 2011.
WFS Has Similar Ideas

WFS projects real GDP to grow at a ~ 3.0% annual pace in 2010.
They also project real GDP to grow at a ~ 2.2% annual pace in 2011 as weak job growth and high unemployment will likely hold down discretionary spending.
Economic indicators continue to suggest a moderate recovery is underway.
Details under the Headlines (cited from WFS)

Retail sales fell a disappointing 1.2% in May.
Building materials fell 9.3% on the month, due to give-back from stimulus-induced appliance spending and lower winter storm-related spending.
Gasoline and motor vehicle sales also fell in May.
Core retail sales (which exclude autos, gasoline & building materials) rose 0.1% in May, and are up 3.5% from a year ago.
The nominal and real U.S. trade deficit for goods and services widened in April.
Employment - No Change

Initial jobless claims remained stubbornly in the 450,000 range, falling by 3,000 to 456,000.
Small business hiring was positive for the first time since September 2008.
Per WFS, the biggest obstacle for small business hiring continues to be access to credit.
Prices - Inflation…or Deflation?

The CPI fell 0.1% in April, the first decline in more than a year.
The Core CPI (which excludes food & energy prices) remained flat at 0.9%, a 44-year low!
WFS projects CPI to fall again in May, led lower by energy prices.
Housing rental indexes have exerted downward pressure on core prices.
Goods prices continue to rise faster than service prices, but the pace is slowing.
Core goods prices are being pulled up by stronger global economic growth, whereas weak domestic demand continues to restrain core services prices.
WFS projects that substantial slack in the economy should continue to put downward pressure on core consumer prices.
What’s Happening With China?

The $40.3 billion trade deficit incurred by the United States in April, was the largest monthly trade gap in more than a year.
Chinese exports increased by 48% (vs. prior year) which contributed to their $19.5 billion trade surplus in May.
The U.S. bilateral trade deficit with China shrank from $268 billion in 2008 to $227 billion in 2009!
Why? The deep U.S. recession caused the dollar value of American imports from China to decline by 12% while U.S. exports to China held steady.
Now that the American economy is in recovery mode, imports are starting to grow again.
U.S. imports from China (Jan-Apr) were up 14% relative to 2009, and the bilateral trade deficit is widening again.
What Can We Do About the Trade Deficit?

America runs a trade deficit because it saves “too little” while China has trade surpluses because it saves “too much.”
U.S. policymakers cannot encourage lower savings in China, but they could implement policies that would increase the low national savings rate in the United States.
Unfortunately we live in a political society where it is difficult to build political support for policies that would involve pain.
WFS says to watch for rhetoric about the U.S.-Sino trade deficit to escalate in the months ahead.
So fasten your seatbelts....it looks like the bumpy road may be with us for a while.
The best way to keep up is to keep informed...so stay tuned.

THOUGHT FOR THE WEEK

Personal Connections

Every day we interact with someone at the other end of the line.
Whether the line is the phone or e-mail or Linked-In or Facebook, we are still connecting with a real person.

Real people have good days and bad days.
They have families who depend on them.
They have health issues and worries about their jobs or their loved ones.

Real people sometimes need a shoulder more than a sound-bite.
They may need understanding and support more than a tweet.
Real people are nourished by human connections with those who really care about the person at the other end of the line.

In the days and weeks ahead, may we do our best to make our connections real and personal.
In business and in private, may we remember to honor the person at the other end of the line.
By truly connecting with one another, may we learn to see each other not as human-doings, but as human-beings.

Make it a great week.

David Rosenthal, MAI
President & CEO
Curtis-Rosenthal, Inc.

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