Economy not headed for double-dip recession

Sahely Mukerji, Glass Magazine
September 14, 2010

Jeff Dietrich, senior analyst, Institute for Trend Research, Concord, N.H., presented the economic forecast “Recovery – Are We There Yet?” at the fifth annual Glazing Executives Forum, Sept. 14, at GlassBuild America: The Glass, Window & Door Expo in Las Vegas. More than 150 glass and glazing professionals attended the forum.

“We’ll see a turnaround, and that means we’ll see a low,” Dietrich said. “It won’t be linear; there will be bumps and bruises, stops and starts, consistently for the next year. We don’t think there will be a double-dip recession ... Double-dip recession is a very, very rare event. The momentum of this economy is upwards, to build and rebuild itself.  We expect a slowdown in the early part of 2011.”

There are 13 "lucky" signs that indicate there won’t be a double-dip recession, Dietrich said:

  1. Leading indicators indicate a slowdown, no collapse. Seven of 12 districts in the Federal Reserve Bank Beige Books are expanding; three are stable.
  2. Corporate profits are up 39 percent in 2010.
  3. Corporations are sitting on $32 trillion in cash. There are healthy balance sheets and reduced costs for U.S. businesses. Delinquency rates for commercial and industrial loans are declining.
  4. Consumers are spending and saving. “They’re living within their means,” Dietrich said. “Incomes are 1.2 percent over last year. Consumers are sitting on $724 billion in cash and savings. They have $4 trillion in credit cards and HELOC [Home Equity Line of Credit]. Debt to equity is declining (125 percent to 114 percent).”
  5. Unemployment is close to 10 percent and under employment is 16.5 percent.
  6. There is plenty of unspent government stimulus money; more is coming.
  7. Interest rates are historically good, and will remain good into the second half of 2011.
  8. Inflation is benign, and will be until the second half of 2011.
  9. Elections on Nov. 4.
  10. Secondary market loans are returning (healing): 30 percent of the secondary loans come from Europe.
  11. Global economies are showing signs of turning around.
  12. Consensus from the Institute for Trend Research, Bank of America, Wells Fargo, and the Federal Reserve Bank is there won’t be a double-dip recession. Banks actually have cash to loan.
  13. The U.S. holds 25.6 percent of the world’s GDP. “Don’t forget where you live; don’t forget where you work,” Dietrich said. “If you were born in the U.S., you’ve already won the lottery. Don’t underestimate the opportunity of that fortune.”

Housing starts are coming back, Dietrich said, but 2011 will be very challenging for non-residential construction. Office building construction is at 16-year low at negative 40.1 percent. Industrial building is at minus 21.1 percent, and manufacturing is at minus 13.9 percent. Tax revenues are very depressed and are not going to turn around anytime soon.  Commercial building construction will be down 26.5 percent this year, and another 4.7 percent in 2011. “2012 is when you start feeling better in private non-res construction,” Dietrich said.