Market Research
Investment Evironment:
With third quarter 2011 economic growth nearly twice as high as second quarter growth, the recovery of the Dow Jones Industrial Average Index to the 12,000-benchmark, and the prospect that somehow Congress might put aside their partisanship and come to a compromise about reducing the debt before the end of the year, there seemed to be a little more hope that things were finally starting to turn around in the economy and our investment environment. But we were brought back to reality when Federal Reserve Chairman Ben Bernanke noted in his press conference on Nov. 2, 2011, that concerns “about European fiscal and banking issues have contributed to strains in global financial markets,” and those concerns are “likely to have adverse effects on confidence and growth.” Suddenly, the belief that things may be getting worse instead of better began to take hold.
Instead of worrying about the slow growth in the U.S. and the possibility that this country may be tipping back into recession, now we are worried about the financial crisis in Europe pulling us into a global recession. What’s more, the institutions we thought we could count on to pull us out of this situation have let us down. Even the Occupy Wall Street protesters, who seemed harmless enough when they focused on greed and wage disparity, have deteriorated into a mob responsible for assault, destruction of property, and even the closing down of the Port of Oakland.
The world we thought we understood seems to have gone crazy and chaos seems to surround us from every angle. It isn’t just the problems with Greece and Italy—other European nations are also facing debt crises. And in the U.S., despite the stimulus packages, the quantitative easing, and the passage of Dodd-Frank and other banking regulations, it is becoming clear that we remain susceptible to the dangers that caused the near-collapse of the financial system just a few years ago. Our investment environment remains at risk.
Economic Highlights:
Growth Increases but Spirits Still Low
Recent fears that the economy would fall back into a recession have been alleviated for the moment with increasing economic growth in the U.S. According to the Bureau of Economic Analysis’ (BEA’s) advance estimate, the economy grew at an inflation-adjusted annual rate of 2.5 percent in third quarter 2011, rebounding from its shockingly low 0.4-percent growth in first quarter and 1.3-percent growth in second quarter. Third quarter gross domestic product (GDP) growth was due primarily to increases in consumer spending on durable equipment and services and to business investment spending. Although consumer spending increased 2.4 percent in third quarter 2011, according to the BEA, and retail sales increased 8.0 percent, according to the Census Bureau, consumer confidence plummeted to 39.8 in October 2011, the lowest reading since the depths of the recession, reported the Conference Board. In addition, according to the Census Bureau, median household income continues to fall, dropping to $49,445 in 2010, adjusted for inflation. This is the first time since 1997 that American households have earned a median income of less than $50,000 a year, while the official poverty rate increased to 15.1 percent in 2010.
Long-Term Effects of High Unemployment
With only 103,000 new jobs in September 2011, the unemployment rate remained at 9.1 percent, reported the Bureau of Labor Statistics (BLS). Job gains were in professional and business services, health care, and construction, while government employment trended downward. According to the BLS, 14 million persons remain unemployed, and the U-6 unemployment rate inched up to 16.5 percent. Even more dismal is the news from the Federal Reserve that it has lowered its employment outlook, and expects the unemployment rate to fall more gradually than previously expected, declining to around 8.6 percent in late 2012 and 8 percent in 2013. The nation’s high unemployment and underemployment are having measurable long-term effects on American society overall. Approximately 6.2 million persons remained unemployed for 27 weeks or more, accounting for 44.6 percent of the unemployed, according to the BLS, and as the amount of time they are unemployed increases, the more their job skills deteriorate and the more unlikely it is that they will ever again be employed in their field of expertise
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Investment Trends Quarterly's Copyright© 2011 by Real Estate Research Corporation (RERC) and the CCIM Institute.