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Portfolio > Economy & Markets > Economic Trends

Positive Economic Indicators Increase

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While there probably aren’t a lot of people singing “happy days are here again,” yet, there have been a number of encouraging signs in the recent economic news. The decrease in real gross domestic product (GDP) slowed to an annual rate of 1% in the second quarter of 2009, according to a release from the Bureau of Economic Analysis on August 27. That’s a big decrease from the first quarter of 2009, when real GDP–the output of goods and services produced by labor and property located in the United States–decreased 6.4%.

The latest GDP estimate is based on more complete source data than were available for the “advance” estimate issued in July.

The decrease in real GDP in the second quarter primarily reflected negative contributions from private inventory investment, nonresidential fixed investment, personal consumption expenditures (PCE), residential fixed investment, and exports that were partly offset by positive contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

That wasn’t the only positive news this week. On August 26, the Census Bureau released figures indicating that new orders for manufactured durable goods increased in July by 4.9% to a total of $168.4 billion. That marked the third increase in the last four months and the largest percentage increase since July 2007.

The same day came the release of Standard & Poor’s Case-Shiller Home Price Index for the month of June which showed improvement in 18 of the 20 cities tracked. That was much better news than in recent months–in May only eight cities were up, in April there were four, and in March only one. That report was backed up by one the previous day form the Federal Housing Finance Agency which showed a 0.5% rise in the house price index in June, following a revised 0.6% increase in May.

Such reports help explain why Quincy Krosby, chief market strategist for Prudential Annuities, described her outlook as “cynically optimistic,” at a mid-year economic press briefing held in New York on August 18. Krosby cited data, including the preliminary GDP estimate cited above, indicating that the recession’s grip is clearly easing but also noted that she expects more stimulus spending to keep the recovery going.

At the same briefing Edward Keon, managing director and portfolio manager for Quantitative Management Associates, said that what he referred to as “The Great Recession,” is probably over, but added that “people’s uneasiness may last for a while.”

People may be uneasy, but they’re willing to spend if the price is right as the just-ended “cash for clunkers” program, which transportation secretary Ray LaHood described as “a win for the economy, a win for the environment, and a win for American consumers,” demonstrated. Predictions from within the Obama Administration see an additional 0.4% economic growth in the current quarter due to increased auto sales in July and August.


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