gtownspur
04-12-2006, 02:35 AM
You can't keep U.S. economy down
Strength, diversity allow it to reinvent itself repeatedly
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Font: * * * * Jacqueline Thorpe, Financial Post
Published: Monday, April 10, 2006
The sheer strength and diversity the world's biggest economy is displaying makes Canada's rag-tag collection of oil rigs, nickel mines and banks look like a lemonade stand by comparison.
An overwrought housing market may be hanging over the United States like a thundercloud, its two great car companies may be teetering on the brink of bankruptcy and its shoppers may have frittered away their last dollar of home equity but, man, that economy sure knows how to reinvent itself.
"Broadly speaking, the U.S. economy is doing very well," Steven Cochrane, managing director of regional economics for Moody's Economy.com, said at a recent presentation in Toronto. "Industrial production and employment [are] rising across most States. There are very few weak spots. For the first time since the late-1990s, the economy is behaving as a cohesive block. There's a classic distribution of economic growth after a five-year hiatus."
For sure, the housing boom, which has driven growth for the past several years, seems to be fading as home sales and prices sink.
The horror stories are starting to emerge.
Foreclosures in Denver soared 31.5% in the first quarter over the previous year, according to a story in the Rocky Mountain News.
The News quoted real estate broker/dealer Sean Healey of Keller Williams Preferred Realty, who said the foreclosures were starting to put downward pressure on existing home prices, which, in turn, was forcing more homeowners into foreclosure in the classic downward spiral that is usually the housing market's undoing.
"Primarily, I see a huge glut of homes priced under US$300,000," Mr. Healey said. "Under US$200,000, it is just a bloodbath, a path of devastation. It is just ugly."
Ugh. Mr. Cochrane thinks the hottest markets in California, Florida and the Northeast will see double-digit price declines over the next couple of years as the froth comes off.
"In the grand scheme of things, it's not devastating but it could cause problems for recent homeowners," he said.
It will also likely cause problems for the wider economy. By some estimates, housing and all jobs connected with it, such as real estate and legal, have been the source of 40% of all job creation since the 2001 recession, not to mention a steady stream of cash from home equity withdrawal -- a huge US$900-billion last year.
But the United States is not all about housing.
"We're going through a very significant transition -- away from housing and consumer spending -- towards corporate investment and exports, travel and tourism," Mr. Cochrane said.
At the root of this transition is the U.S. corporation, which is in its best financial shape in years. After-tax profit margins are above 10%, matching those of the late 1990s. Interest expense as a share of cash flow is the lowest in 25 years.
And companies are spending -- not wildly, like in the 1990s, but quietly and steadily. Both IT and non-IT investment have been running at a steady 12% annual pace in the past couple of years.
Regionally, the South and West are leading the way in growth, propelled by spending on manufacturing, technology and aerospace.
http://www.canada.com/nationalpost/financialpost/story.html?id=93b2f66f-9061-46d3-bdfd-a8d55f6d7c02&k=90800 (http://)
Strength, diversity allow it to reinvent itself repeatedly
Article Tools
Printer friendly
Font: * * * * Jacqueline Thorpe, Financial Post
Published: Monday, April 10, 2006
The sheer strength and diversity the world's biggest economy is displaying makes Canada's rag-tag collection of oil rigs, nickel mines and banks look like a lemonade stand by comparison.
An overwrought housing market may be hanging over the United States like a thundercloud, its two great car companies may be teetering on the brink of bankruptcy and its shoppers may have frittered away their last dollar of home equity but, man, that economy sure knows how to reinvent itself.
"Broadly speaking, the U.S. economy is doing very well," Steven Cochrane, managing director of regional economics for Moody's Economy.com, said at a recent presentation in Toronto. "Industrial production and employment [are] rising across most States. There are very few weak spots. For the first time since the late-1990s, the economy is behaving as a cohesive block. There's a classic distribution of economic growth after a five-year hiatus."
For sure, the housing boom, which has driven growth for the past several years, seems to be fading as home sales and prices sink.
The horror stories are starting to emerge.
Foreclosures in Denver soared 31.5% in the first quarter over the previous year, according to a story in the Rocky Mountain News.
The News quoted real estate broker/dealer Sean Healey of Keller Williams Preferred Realty, who said the foreclosures were starting to put downward pressure on existing home prices, which, in turn, was forcing more homeowners into foreclosure in the classic downward spiral that is usually the housing market's undoing.
"Primarily, I see a huge glut of homes priced under US$300,000," Mr. Healey said. "Under US$200,000, it is just a bloodbath, a path of devastation. It is just ugly."
Ugh. Mr. Cochrane thinks the hottest markets in California, Florida and the Northeast will see double-digit price declines over the next couple of years as the froth comes off.
"In the grand scheme of things, it's not devastating but it could cause problems for recent homeowners," he said.
It will also likely cause problems for the wider economy. By some estimates, housing and all jobs connected with it, such as real estate and legal, have been the source of 40% of all job creation since the 2001 recession, not to mention a steady stream of cash from home equity withdrawal -- a huge US$900-billion last year.
But the United States is not all about housing.
"We're going through a very significant transition -- away from housing and consumer spending -- towards corporate investment and exports, travel and tourism," Mr. Cochrane said.
At the root of this transition is the U.S. corporation, which is in its best financial shape in years. After-tax profit margins are above 10%, matching those of the late 1990s. Interest expense as a share of cash flow is the lowest in 25 years.
And companies are spending -- not wildly, like in the 1990s, but quietly and steadily. Both IT and non-IT investment have been running at a steady 12% annual pace in the past couple of years.
Regionally, the South and West are leading the way in growth, propelled by spending on manufacturing, technology and aerospace.
http://www.canada.com/nationalpost/financialpost/story.html?id=93b2f66f-9061-46d3-bdfd-a8d55f6d7c02&k=90800 (http://)