NOLTE NOTES
Yes, We're Still in a Recession
by Paul J. Nolte, CFA
July 7, 2009

In the words of Maxwell Smart…missed it by that much! The jobs report came in much worse than expected and forced investors to review their “green shoots” thesis and pushing down stocks by 200 points in the process. One of the more interesting points about the jobs data is in the past seven recession since WWII, this one has shown the greatest percentage loss of jobs and unless it bottoms right now, will be the longest decline in jobs, beating the ’73-’74 recession. Little better news came from the manufacturing sector, where their index improved, however remained below the “sector improving” level. Finally, the weekly reports on jobless and housing remain near extreme levels. The weekly jobless data is still over 600k, an indication that jobs continue to be lost at a rapid rate. The housing data, as e have mentioned in the past, remains very low, even with near historic lows in interest rates, home purchase activity also remains near historic lows. Would you believe, were still in a recession!

The third weekly decline in a row has not broken the market from its wide trading range between 880 and 950 on the SP500. Certainly, many of the indicators we follow are deteriorating and are signaling that we should break down, however they have signaled that break more than once in the past two months. The new and updated data from the Standard & Poors shows a still declining earnings picture, with earnings down nearly 90% from year ago levels. Earnings season begins anew this week with a few companies reporting, but in earnest, earnings season starts next week. Our various momentum indicators have rolled over and begun to drop, confirming the decline in stocks. However, more importantly are the volume figures, which still show a buying tendency among investors. Friday large decline came on the second lowest volume traded for the year (the first of the year was lower). Until we get volume confirming price, we will lean on the trading range thesis for the markets.
 
The bond model continues to point to lower yields in the weeks ahead. Given the decline in the commodity complex, a Fed not wanting to increase interest rates until they see the “whites of the eyes” of recovery and a recover that now looks to be a thing of the future, bond yields are beginning to once again price in a no-growth scenario. An interesting component of the unemployment report was wage growth – or lack thereof. Wage growth over the past year has come in just over 2%, well below the 4% seen just a year ago. It should be little wonder that with unemployment rising and wages shrinking, the consumer is struggling to find reasons to shop. Until the wage picture brightens, the spending picture remains bleak – and by extension, inflation should also remain tame.

© 2009 Paul J. Nolte, CFA
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The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable, but are opinions and do not constitute a guarantee of present or future financial market conditions.

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Paul J. Nolte, CFA | Director Investments, Hinsdale Associates | 630-325-7100 | Email