There are several key economic indicators to follow in the market. Each is an indicator of the economy, market conditions as well as possible predictors of what may be ahead.
Decline in the Gross Domestic Product (GDP)
GDP carries significant weight since it serves as a "health check" for the overall economy. GDP is a measure of all goods and services in the country.
The third quarter advanced estimate of GDP was -0.3 percent as compared to the second quarter which was 2.8%. About 2/3 of GDP comes from personal consumer expenditures (or consumer spending). The decrease is primarily down due to consumers' withdraw from the market as concerns continue to loom about the current overall economy.
Continued Rise in Unemployment
Unemployment continues to rise. In October, the number of unemployed workers rose by 240,000. In September, the unemployment rate was 6.1%; the October rate is 6.5%. Employment has fallen by 1.2 million jobs in the first 10 months of 2008. As of November 20, unemployment claims continued to rise (higher than analysts expected). At the current rate of job losses, many experts in the market are anticipating unemployment rates to reach 7.5% to 8% in 2009.
As the holiday season begins, retailers are not planning to add jobs as they have in the past. This is just another indicator that the end of the year will not show improvement.
On a positive note, the healthcare and mining sectors continue to add jobs. In addition, President Bush is expected to sign a bill to extend unemployment benefits to help those in need.
Business and Services Losses Persist, Generally
Losses continue in manufacturing, construction and some service sectors. With the overall credit crisis being felt across several sectors in the economy, jobless claims are expected to continue to increase. The financial, automotive and retail sectors are all experiencing difficulties with more layoffs anticipated.
The Commerce Department reported retail and food services sales decreased by 3.1% from August to September. This is 5% below last year. The biggest drag in this indicator comes from autos. The good news, however, is that consumers spent a bit more on services as compared to the previous month.
CPI Drops Significantly
CPI acts as a barometer for inflation (or the costs of goods and services).
Another important indicator followed by the market is the Consumer Price Index (CPI). CPI acts as a barometer for inflation (or the costs of goods and services). It decreased in September by 0.1% (unadjusted). However, October posted the largest one month drop in 61 years, down 1% (unadjusted).
Energy and fuel experienced the largest decreases. The good news is that energy decreased, however food costs continue to increase. Through September of this year, energy has increased 16.6% as compared to 17.4% in all of 2007. The food index rate increased 7.5% in the first 9 months of this year as compared to an overall increase of 4.9% in all of 2007.
As a key indicator for the Federal Reserve, they often carefully monitor CPI and the core CPI which removes the energy and food measures of the index; these are the most volatile components of CPI. The core CPI increased by 0.1% in September and decreased by -0.1% in October.
Nevertheless, the CPI remains 3.7% higher than the same time last year. The third quarter annualized adjusted rate was up by 2.6%. Based on the September 2008 report, the year to date annualized rate in was is 4.5%. This is compared to the overall rate for all of 2007 of 4.1%.
The bigger concern now surfacing in the market is deflation.
Consumer Confidence on the Decline
Consumer perception is another gauge for the market. The Consumer Confidence Survey reported by the Conference Board published an all time low in the survey index in October, the lowest index rate on record. Consumers believe that business conditions are "bad", and they do not expect a recovery anytime soon.
30-year Mortgage Rate Decrease
The 30-year-fixed rate mortgage rates as reported by Freddie Mac continued to increase (overall) from January through August of 2008. From August to October, the rate has decreased from 6.48% to 6.20%. This is an increase over the average September rate of 6.04%. The current economic issues related to the credit markets will continue to place pressure on lending.
Conclusions
Overall, the market has contracted with negative GDP, higher unemployment, less consumer spending, and deteriorated consumer confidence. The current conditions in the market are not expected to improve until after the US Treasury and the Federal Reserve have had time to implement the bailout plan (TARP), and fully distribute the funding to aid the financial sectors of the economy. We remain hopeful that the infusion of money will boost confidence in the market.
The current influence on the economy from the Obama administration is unknown, and will most likely remain that way for some time after the inauguration in January. Changes in monetary and fiscal policy will take time to be felt throughout the market place and especially by consumers. Economic market experts predict that we will see continued market slowing in the near future.
TREND remains hopeful that the local market will recover in line with the nation. However, the US Treasury, the Federal Reserve and other market economists report that we are currently experiencing a recession that will continue through 2009.