Groundhog Day

Sorry for the belated post from 2/2/10:

www.mksense.blogspot.com Today being Groundhog Day I thought it a good time to look ahead to see what the economy may look like during the next six quarters. Unlike the illustrious Punxatawney Phil, I do not rely on my shadow to forecast upcoming economic conditions. Instead, I listen to comments made by the people at the center of the economy. These people would be CEOs, bank executives and small and medium size business owners. Although there businesses and locales may be very different, most are of the opinion that the economic recovery will be modest and gradual. Just today, the CEO of BP said the oil giant is forecasting a long, gradual recovery. A board member of Bremen Bank (Missouri) told the Wall Street Journal that the demand for credit by business clients is very light. They are instead paying off their current debts and are getting lean and mean to do so. In various Fed reports, businesses are reporting that they are reluctant to hire. Increased productivity and expected lackluster consumer demand is hindering job growth. On article on the Wall Street Journal website quotes Whirlpool CEO Jeff Fettig as saying that the company will reduce capacity in 2010. Ford CEO Alan Mulally is forecasting U.S. car and truck sales to come in the 11 million to 12 million range. The recent high water mark came in 2005 when 17 million vehicles were sold in the U.S., spurred on by massive rebates and 0% financing. Huntsman Chemical said that when and if the Chemical industry has to ramp up production, it will build facilities overseas rather than hire more expensive U.S. workers. Things are not all that rosy overseas. Many European economies (Greece, Spain, Portugal, Ireland, Italy and some former Eastern Bloc nations) have serious economic problems which threaten to bring down their sovereign financial systems. Since the EU is a loose confederation and the ECB's powers are limited, it is not clear what aid, if any, these troubled nations will receive. Last week China took steps to slow its economy. Today Australia, which relies on exports to China for much of its economic strength, unexpectedly decided to leave its benchmark rate at 3.75%. The Reserve Bank of Australia is concerned that global economic growth could be more modest. Action in the fixed income markets has been quieter than usual as market participants are focused on Friday's Non-farm Payrolls number. The street consensus is calling for the addition of 8,000 jobs. Although this would be the second positive report in three months, 8,000 jobs doesn't even keep pace with Americans entering the workforce and, although a lagging indicator, is far below what would be expected at this point of an economic recovery. I think Bill Gross is right. There will be a "new norm." Tell your friends. I am looking for more subscribers.