Beware of the W in Recovery

Good news for today’s economic markets, GDP for the third quarter is up for the first time since 2007 with a strong adjusted uptick of 3.5%.   Market watchers are heralding this as the end of the Great Recession and the start of the Long Recovery.

View the MSNBC.com analysis at http://www.msnbc.msn.com/id/33529806/ns/business-stocks_and_economy/

While markets will no doubt enjoy a late October bounce and perhaps small rally on this news, the reality on Main Street paints a very different picture.  Newport Consulting Group has been watching the key indicators for production, inventory levels in combination with the available discretionary income levels which govern large durable goods purchases.  In September we found while production of durable goods continued to expand and existing inventory levels contracted, personal savings took a brief downward trend from its 12-month high of 6.2% earlier this year to an initial figure of 3.0%

When we speak with our clients, particularly those in the manufacturing sector, corporate spending patterns on new or expanded capabilities remain extremely conservative for the balance of 2009.  Employee hiring levels appear to be constant during that time, suggesting several months of tough sledding still in the job market.  New initiatives for increased production, hiring, and discretionary spending levels have been shuffled out to 2010.

The bounce in GDP is certainly welcome news.  However this is no guarantee of reduced unemployment, increased consumer confidence, or the return to pre-2005 savings levels.  While experts suggest a tepid bounce in consumer spending over the holidays, evidence of the “W-curve” which had been warned of earlier this year will continue until personal savings for Americans reach sustainable levels at or near 10%.   Until then business leaders should beware of the “W” in the word “Recovery.”

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