Monday, October 01, 2018

2009: Calling the Bottom for the Economy

by Bill McBride on 10/01/2018 10:02:00 AM

CR Note: Gone hiking! I will return on Thursday, Oct 4th.
In early 2009, many analysts were predicting the 2nd Great Depression. However I started seeing some positive signs ... and I was able to call the end of the recession in mid-2009.

From January 2009: Vehicle Sales

David Rosenberg at Merrill Lynch wrote a research piece last week: "Not Your Father’s Recession ...(But Maybe Your Grandfather’s)" (no link)

Needless to say, the piece wasn't too upbeat.

But I was intrigued by some of the comments on vehicle sales.
Currently this ratio is at 23.9 years, the highest ever. This is an unsustainable level (I doubt most vehicles will last 24 years!), and the ratio will probably decline over the next few years. This could happen with vehicles being removed from the fleet, but more likely because of a sales increase.
Sales won't increase right away (look at the depressed sales during the early '80s), but this does suggest that auto sales are closer to the bottom than the top, and that auto sales will increase significantly in the future - although sales in 2009 will probably be dismal.
And from February 2009: Looking for the Sun
2009 will be a grim economic year. The unemployment rate will rise all year, house prices will fall, commercial real estate (CRE) will get crushed ... but there might be a few rays of sunshine too.
Even though most of the economic news will be ugly in 2009, my guess is all three of these series will find a bottom (or at least the pace of decline will slow significantly). This means that the drag on employment in these industries, and the drag on GDP, will slow or stop.

These will be rays of sunshine in a very dark season. That doesn't mean a thaw, but it will be a beginning ...
CR Note: I do not have a crystal ball, but I was looking past the horrible day-to-day numbers and starting to see the end of the recession.