It’s tough to tell the difference between reality and wishful thinking.
A desert wanderer desperate for water will imagine an oasis, only to slake his thirst on mouthfuls of sand. Likewise, battle-weary investors will glom onto any signs that the economy has begun to rebound.
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No one genuinely has been immune from the steep downturn in our economy. Even famed luxury shopping districts like Rodeo Drive in Beverly Hills and New York’s Fifth Avenue have looked like relative ghost towns.
Sales at Gucci, Coach, Bentley and Tiffany have plummeted. Only the deep discounters, like Target, Costco and Walmart, have prospered. The bookings at every high-end hotel and resort are down. With summer rapidly approaching, it appears that most families will be vacationing close to home.
There are some indications that the economy may have found the bottom.
A growing number of analysts believes that the stock market may have traded in the vicinity of its lowest ebb. While there may be additional sell-offs, their view is that the worst may be over.
The number of Americans signing contracts to buy previously owned homes unexpectedly rose in February, reinforcing signs that the housing slump, in its fourth year, may have found the floor. With interest rates at historic lows, buyers with a good credit standing have begun to find loans at very attractive rates.
Everybody Else Is Improving
These lower mortgage rates, combined with foreclosure-driven price declines, are luring more buyers. This will help trim the property glut, easing the drag from the housing recession. Several prominent economists project the downturn should ease as efforts to thaw credit and offer tax breaks to first-time buyers begin to take hold.
Other than the West, which saw a 13.5 percent drop in pending sales, every other region of the country experienced significant gains. The persistence of the decline in the West may reflect the market perception that prices in that region still have a ways to go before the correction in values is over.
These positive signs, however, are being offset by the employment numbers. Companies still are slashing staff while tight credit conditions and shrinking household wealth cause sales to shrink. The weekly Labor Dept. report due out on Friday likely will show that employers have cut payrolls in March for the 15th consecutive month, pushing job losses in the current downturn to more than 5 million.
According to a report released yesterday by ADP Employer Services, companies in the U.S. cut an estimated 742,000 workers in March. These numbers come on the heels of a February report that showed job cuts of 706,000. In the near term, there doesn’t appear to be any relief for the labor market.
The ISM (Institute for Supply Management) numbers also point to a continued contraction in the economy. The ISM index gauges economic growth by tracking factory orders nationwide. Analysts were somewhat encouraged that the ISM factory index rose to 36.3 last month from 35.8 in February. Any ISM reading less than 50 signals a continued economic downturn.
We Are Failing More Slowly
The ISM numbers show that the pace of the decline is slowing. Although it still may be too early to listen for the sound trumpets, it may be time to start saying that things are not getting as bad as quickly as they were earlier.
While the tea leaves of the economy may be looking more positive, most consumers still are not convinced. Car company programs, like those by Korean automaker Kia, and most recently G.M., which offer payment insurance or the option to return your new car if you lose your job, reflect the mood of most work-a-day consumers.
It’s not simply the purchase of big ticket items like cars that are being delayed. Consumers still remain gun-shy toward everything from computers and cell phones to clothing and dining out. Even the nation’s dry cleaners are reporting a steep decline in revenue. The need for a sharp crease and a professional finish have given way to the pragmatism of wash-and-wear.
All eyes remain on Washington. Any turn of phrase still can send the markets reeling.
The worst may be over for the markets. But the shock waves of the market implosion will be felt on Main Street until unemployment begins to level off.
The bottom is there. It’s just not yet visible to naked eye.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
