NEW YORK—The Economist’s Update proved to be a balanced look at the current situation in the U.S. economy.
|
|
|
David A. Wyss, chief economist at Standard & Poor’s, said the economic declines are going down at a slower rate, which helps confidence, but the talk of green shoots “is a bit early.” The downturn could be longer and deeper than many people think, he told attendees at the 31st Annual New York University International Hospitality Industry Investment Conference at the Waldorf-Astoria this week.
Wyss’ first example: Home price indexes for the group of markets including Las Vegas, San Francisco, Miami and San Diego will see declines of 50 percent before the recession is over.
“The average home price will be the lowest in history compared to income,” Wyss said. “And the (Federal Reserve) responded by cutting the interest rate.” This just pushed other rates down, he said.
Wyss called the current downturn the most synchronized recession ever and dubbed it “synchronized sinking.”
One of the consumer issues is that while everyone is trying to save money, they aren’t spending any money, he noted.
“To quote St. Augustine, ‘Lord, give me chastity, but not yet.’”
Stock market declines in April 2009 worldwide were the worst since “the big one” in 1929. “Everybody’s down, and they’ve got to get out together or not at all,” Wyss said.
And to be sure he was not to be labeled as an optimist, Wyss concluded by saying an even deeper recession is possible if the financial markets remain locked up, oil prices rebound and home price continue to drop.
The other side
Bernard Baumohl, chief global economist for The Economic Outlook Group LLC, presented arguments for both a continuing recession and a recession that is winding-down.
Signs the recession is far from over:
• History has shown a banking crisis takes years to repair.
• More mine fields—defaults on credit cards and commercial real estate expected to rise.
• Consumers traumatized after a record US$11 trillion of their wealth evaporated in 2008.
• Auto and residential real estate remain depressed.
Signs the recession is winding down:
• Fewer filings for unemployment benefits.
• Consumer spending has picked up in the first quarter.
• Home sales and car showroom traffic is picking up.
• Housing inventory levels are declining.
• Factory inventories also are falling.
• Factory orders are on the rise.
• Consumer confidence has improved.
• Stock market has rebounded.
But in the end, he fell in the positive-outlook camp.
“My guess is that we’re a lot closer to the recession being over,” Baumohl said. “We’re at an inflection point, and we could see growth by the fourth quarter this year.”
He added the commercial real estate situation is a race against time.
“I see the economy and commercial real estate relationship as one tied to the other with a bungee cord,” Baumohl said. “If the economy comes back strong and quick enough it could help commercial real estate.”
And like others at the conference, he suggested now is the time to buy.
“For anyone who can raise the capital and has a sterling credit rating, this is the best time to buy real estate,” Baumohl said. “For those who have to go to commercial markets to borrow, it’s going to be tough.”