The Economic and Market Backdrop

The Economic and Market Backdrop DOUBLE-DIP SCENARIO FADES, BUT THE RECOVERY REMAINS MUTED It took quite a bit longer than many expected, but in late September, the National Bureau of Economic Research told us the "Great Recession" ended in June of 2009. Spanning December 2007 to June 2009, this marked the longest reported recession since the Great Depression. Over the 18 months of its existence, the history-making recession resulted in an annualized decline in gross domestic product (GDP) of 2.8% and a loss of 7 million jobs. 25% GREAT DEPRESSION 1929-1941 U.S. UNEMPLOYMENT 1920-2010 Percent unemployed Estimated 20% This would be a small paragraph explaining the importance of the graph. This would be a small paragraph explaining the importance of the graph. This would be a small paragraph explaining the importance of the graph. This would be a small paragraph explaining the importance of the graph. U.S. in WWII 1941-1945 15% Note the sharp increase from 2008 (5.8%) to 2009 (9.3%) Normal unemployment rate 5.5% (1970-2008) 10% 5% ппр 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 SOURCES: U.S. Department of Labor; Bureau of Labor Statistics; Wikipedia; The Heritage Foundation As the third quarter began, economic data began to take on a more negative tone, as earlier improvements in the labor market began to fade, housing trends continued to disappoint and consumer confidence and spending levels remained anemic. Over the course of the last month, however, data began to improve, which served to ease fears of a double-dip recession and helped spark a turnaround in risk assets, including equities. CONSUMER SPENDING -XX% CONSUMER CONFIDENCE -XX% HOUSING TRENDS -XX% A closer look at the data, however, shows that many of the recent positive economic releases actually reflect a lowering of expectations toward less optimistic levels, rather than a dramatic and genuine improvement in the data. In other words, the outlook in the mid-summer timeframe became so dismal that simply meeting expectations was enough cause for celebration. In absolute terms, we have yet to see a strong acceleration in growth levels, leaving the economy mired in a slow-growth scenario. Recent data on industrial activity, housing and employment, while better than they were a few months ago, remain consistent with a sluggish economic recovery. Additionally, the cycle of inventory rebuilding, which was a significant contributor to the positive growth levels over the past four quarters, has all but ended. Looking out over the next three to six months, we see little reason to expect a pronounced acceleration in US economic growth. At the same time, however, we do not believe growth will slow to the point that the economy will sink back into recession. Over the next 12 months, we expect real GDP growt somewhere between the 2% and 2.5% levels. to come in U.S. unemployment r