A quick survey of key economic indicators for the U.S. Economy may indicate that some of the downward drivers may be paring back more than expected, which could either indicate a reversal may be in the offing or we are on the brink of a double dip recession.
Durable Goods Orders: Durable Goods orders are to be released on June 24th and the consensus average is a -0.5% change. Durable Goods orders for April released on 5/28 was an upside surprise (new Orders expected 0.0% change vs. Actual 1.9%), and in April released for March were an upside surprise too (declined less than expected). If the underlying trend in Durable Goods is less negative than what economists are expecting, it may suggest that industrial production and capital spending situation may be a little bit better than expected coming up into the close of the second quarter of 2009.
Consumer Confidence & Consumer Sentiment: Both Consumer Confidence (Conference Board) and Consumer Sentiment (University of Michigan) where upside surprises (upside surprise in April too). Consumer spending is the heart of the U.S. Economy, representing 2/3rd of the economy.
Retail Sales: Although overall Retail sales were slightly below consensus, Retail Sales ex-Auto was slightly better than expected.
Inflation: May Headline Inflation rate was lower than expected, while Core Inflation came in right on the mark.
Employment: May Non Farm Employment was less negative than expected, while the Unemployment rate was slightly higher than expected. Numbers released in May for April also showed a better than expected Non-Farm Payroll situation.
Given the fact that First Quarter GDP was a little worse than Consensus expectation, the overall economic scenario painted by these indicators may suggest that a bottom could be in sight. It is too early to call a turnaround since GDP still has a negative trend, although the trend seems to be decelerating. At the very least we can expect overall 2Q to perform better than 1Q. This seems to align with Prof. Nouriel Roubini’s January prediction (first quarter 2009: -5%; second quarter 2009: -4%; third quarter 2009: -2.5%; fourth quarter 2009: -1%--adding up to a yearly real GDP growth of -3.4% for the U.S. in 2009). Although now "Dr. Doom" Roubini is raising the prospect of a Double-Dip recession, as he thinks that not everything is in alignment for a significant reversal of the recovery trend. Hopefully he is underestimating the impact of all that stimulus money or overestimating the fallout of the public debt burden, because if we are indeed looking at a Double-Dip recession, it will get a lot worse before it gets better.
Global Warming, U.S. Economy and the GM Bailout
Why do I have these three themes in one sentence? That is because I think these could shape each other’s future with a little foresight.
Transportation is the second largest source of greenhouse gas emissions and accounts for a third of all carbon dioxide emission in the U.S. and Canada. Governments the world over are awakening to the fact that irreversible damage is being done to the environment on a global scale, with fossil fuels one of the key culprits. If there is one line item that you are going to find in the budgets of most rational governments the world over, it is investments in clean energy including reducing auto emissions.
President Obama has already made his stance on this clear by saying he hopes to see 1 million plug-in hybrid and electric vehicles on the road by 2015. Many have called this optimistic, but I don’t think so, only that I think President Obama is being myopic in his definition of “road”. I think the U.S. can take a leadership position in the global Hybrid car industry, not just the U.S., by bringing together likeminded Governments that would like to see a reduced consumption of fossil fuels. He said “"The nation that invented the automobile cannot walk away from it." And I agree, but I think “$4 billion in guaranteed loans and tax credits to help U.S. automakers retool for more fuel-efficient cars and to develop batteries for plug-in hybrids that get up to 150 mpg”, is taking a passive stance on the subject. If one American revolutionized the Global Auto Industry with the Model T, no reason why another cannot shape it’s future with making Hybrid technology affordable.
The combination of increased global concern on climate change, public opinion focused on a faltering economy and the current turmoil in the U.S. auto industry provides an alignment that the President should leverage. Especially opportune is the U.S. Government’s investment resulting in controlling interest in General Motors. I have not been fond of bailouts in general, as I favor natural evolution and survival of the fittest, but in this case it could be a good thing. GM is a company that has already made significant investments in hybrid technology (although cars like the 2010 Chevrolet Camaro SS with a V-8 engine bring into question the GM's product development strategy and Bob Lutz's commitment to the longer term). With the might of U.S. Tax payer dollars behind it and a more active rather than a passive Taxpayer role in the Board, this company can take a global leadership role in making U.S. hybrid technology the prevailing currency across the world over the next 5-10 years. This will require the U.S. Government to evolve GM into a largely hybrid car manufacturer. From a macro perspective, this could provide a significant boost to exports in the longer term, balancing the worsening Trade Gap (sales recorded by the global hybrid vehicles market are expected to surge at a CAGR of around 12% during 2008-2015 and focusing on this growth should only enhance Taxpayers’ Return on Investment on GM).
I know from an economic perspective, to make this a profitable venture will require a lot of work. Currently hybrid technology is far from affordable- the GM Volt, which plugs into a household electric socket to charge, is slated to retail for $40,000, nearly the same price as a conventionally fueled Mercedes C Class. As technology improves, this dynamic should change significantly- just look at the Notebook computer industry. And then again this is not just about profits- developing a potentially successful U.S. Hybrid Car Industry has ramifications that will reverberate for more than a hundred years to come, in a global climate that will finally begin the healing process from generations of big-cylinder, gas-guzzling monster cars spewing CO2 into the air.
So is the Government bailout of GM a smart move? Yes- only if President Obama was serious when he was talking about “Change”. If he really is as imaginative a leader as I think he is, he will take this opportunity and score a big touchdown on all three fronts: Global Warming, U.S. Economy and the General Motors.
Transportation is the second largest source of greenhouse gas emissions and accounts for a third of all carbon dioxide emission in the U.S. and Canada. Governments the world over are awakening to the fact that irreversible damage is being done to the environment on a global scale, with fossil fuels one of the key culprits. If there is one line item that you are going to find in the budgets of most rational governments the world over, it is investments in clean energy including reducing auto emissions.
President Obama has already made his stance on this clear by saying he hopes to see 1 million plug-in hybrid and electric vehicles on the road by 2015. Many have called this optimistic, but I don’t think so, only that I think President Obama is being myopic in his definition of “road”. I think the U.S. can take a leadership position in the global Hybrid car industry, not just the U.S., by bringing together likeminded Governments that would like to see a reduced consumption of fossil fuels. He said “"The nation that invented the automobile cannot walk away from it." And I agree, but I think “$4 billion in guaranteed loans and tax credits to help U.S. automakers retool for more fuel-efficient cars and to develop batteries for plug-in hybrids that get up to 150 mpg”, is taking a passive stance on the subject. If one American revolutionized the Global Auto Industry with the Model T, no reason why another cannot shape it’s future with making Hybrid technology affordable.
The combination of increased global concern on climate change, public opinion focused on a faltering economy and the current turmoil in the U.S. auto industry provides an alignment that the President should leverage. Especially opportune is the U.S. Government’s investment resulting in controlling interest in General Motors. I have not been fond of bailouts in general, as I favor natural evolution and survival of the fittest, but in this case it could be a good thing. GM is a company that has already made significant investments in hybrid technology (although cars like the 2010 Chevrolet Camaro SS with a V-8 engine bring into question the GM's product development strategy and Bob Lutz's commitment to the longer term). With the might of U.S. Tax payer dollars behind it and a more active rather than a passive Taxpayer role in the Board, this company can take a global leadership role in making U.S. hybrid technology the prevailing currency across the world over the next 5-10 years. This will require the U.S. Government to evolve GM into a largely hybrid car manufacturer. From a macro perspective, this could provide a significant boost to exports in the longer term, balancing the worsening Trade Gap (sales recorded by the global hybrid vehicles market are expected to surge at a CAGR of around 12% during 2008-2015 and focusing on this growth should only enhance Taxpayers’ Return on Investment on GM).
I know from an economic perspective, to make this a profitable venture will require a lot of work. Currently hybrid technology is far from affordable- the GM Volt, which plugs into a household electric socket to charge, is slated to retail for $40,000, nearly the same price as a conventionally fueled Mercedes C Class. As technology improves, this dynamic should change significantly- just look at the Notebook computer industry. And then again this is not just about profits- developing a potentially successful U.S. Hybrid Car Industry has ramifications that will reverberate for more than a hundred years to come, in a global climate that will finally begin the healing process from generations of big-cylinder, gas-guzzling monster cars spewing CO2 into the air.
So is the Government bailout of GM a smart move? Yes- only if President Obama was serious when he was talking about “Change”. If he really is as imaginative a leader as I think he is, he will take this opportunity and score a big touchdown on all three fronts: Global Warming, U.S. Economy and the General Motors.
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