A newsletter I received today is a bit more positive on the recovery and does make a good point that despite high unemployment our national office vacancy rate is better that expected.
Monday Morning Outlook
Brian S.
Wesbury - Chief Economist First Trust
Robert Stein, CFA - Senior
Economist First
Trust
Over the past
year, as we have defended our forecast of a V-shaped recovery and the economy
has clearly turned upward, two things have happened. First – slowly and quietly
the consensus forecast for economic growth has been lifted – to roughly 3% real
GDP growth from an anemic 2%. We expect this to continue as the consensus
forecast continues to move toward our 4%+ forecast.
Second – the list
of worries over the economy has grown. Remember credit card fears? Well,
delinquency rates are declining now. What about Credit Default Swaps (CDS’s)?
Yeah, what about them? As you read this, AIG is writing the value of these
contracts up. And who could forget Dubai? Oh, you already did?
Well, no matter
how many of these economy killers disappear into the mist of history, there are
more to take their place. A commercial real estate collapse, the “real”
unemployment rate, housing foreclosures, ARM resets, deficits,
government-created uncertainty, the lack of bank lending, universal healthcare,
cap and trade, looming tax hikes, China, Greece, and don’t forget the unwinding
of economic intervention by the Fed and Treasury and the petering out of
stimulus.
It’s almost as if
the better the economic data, the more things people worry about.
We don’t want to
say that all these worries are not important, or misplaced. There are problems
and issues, but we do believe they are being overblown. For example, the
national office vacancy rate is 17.5% – high – but still lower than it was in
the 1990-91 recession, and lower than one would expect when the unemployment
rate is 9.7%. And now with unemployment declining, vacancy rates should fall as
well.
Many people fear
a “real” unemployment rate of 16.5% (which includes the official unemployment
rate plus marginally attached workers). But this rate is always above
the official unemployment rate and moves along with it. In other words it
offers no new information. Everyone knows unemployment is high, but recoveries
always begin when unemployment is high.
Government
deficits are high, and it is true that government activity is creating
uncertainty, but this has stirred political push-back rarely seen in the US. It
is very likely that the awakened and renewed political energy showing up these
days will finally force Congress to address the issues of its long-term unfunded
liabilities and its out-of-control spending. In other words, the worry and fear
may finally produce action.
Finally, bank
lending, or the lack of it, is bothering many. Conventional wisdom suggests
that the economy cannot recover (at least strongly) without a pick-up in bank
lending. However, this theory leaves us wanting. After declining in the past
two years, total loans and leases held by commercial banks stood at $6.76
trillion at the end of 2009, which was above year-end 2007 levels or any time
before that. In other words, bank lending is currently at levels above those
that existed during what most people call a “bubble” in bank
lending.
Much of this is
about attitude. If you want to find things to worry about, you always can.
It’s like hypochondria. But, in the end, with monetary policy accommodative and
the panic over, the economy is heading upward. And it’s funny how so many
problems seem to dissolve when growth gets underway.
Office Space , Office Vacancy Rate
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