The Compass Report

According to The Compass Report, economic conditions in the first quarter of 2010 garnered a “C-” grade. The grade means that relative to the region’s historic economic performance, the first quarter of 2010 saw relative economic improvement compared to the same period in previous years, and enjoyed economic gain compared to the fourth quarter of 2009 (D).

Economist Jeff Collins conducts the data collection and analysis for The Compass Report, which is presented by Benefit Bank. (Link here for the full report.)

National economic considerations in Collin’s analysis for The Compass Report:
• The U.S. Bureau of Economic Analysis preliminary estimate of Q1 GDP growth in the U.S. was 3.2 %. This follows Q4 2009 GDP estimated annualized growth of 5.6%.

• The macro-economy has clearly stabilized. Despite the most recent GDP estimate which was below forecast, strong data on corporate profits coupled with the reasonably strong output data imply little likelihood the macro-economy will slip back into recession.

• A recent survey by the National Association for Business Economics of business economists forecast a return to employment growth later this year.  Unfortunately, consensus forecast estimate the national unemployment rate remaining above 9% through 2011. Forecast output growth implies that national economy will return to pre-recession output level by the end of this year or early in 2011.

• Employment remains the most daunting economic challenge. As demand picks up, firms that have become leaner during the recession will see strong productivity gains negating the need to immediately add workers. This implies that for roughly 1 in 10 workers, employment will remain elusive for the next 18 to 24 months.

• Year-on-year data indicate that the news is not all bad.  Specifically, the March 2010 unemployment rate is only 1.2% higher than the March 2009 number. This is significantly below the largest month-on-month spread that occurred between June 2009 and June 2008 (4%). Unfortunately, relative improvements in year-on-year data belie the reality that 15.7 million Americans were unemployed in March.

• Consumer sentiment continues to improve as measured by the University of Michigan’s Index of Consumer Sentiment. This is affecting retail sales. The most recent data indicates that retail sales have grown in each of the last five months for which data are available. In March, retail sales grew 5.1% over the previous year. Given the importance of the consumer sector in overall economic activity, this is unequivocally good news.

• Rising GDP and tame price levels remain the strengths of the U.S. economy. Long-term rates remain below the historic averages while the effective Fed Funds rate remains unchanged. The effective Fed Funds rate for March stood at 0.16%, well within the target range of 0.0 to 0.25%.

• The 30-year mortgage rate for March was 4.97%, amongst the lowest recorded rates in the last decade. Finally, the 10-year Constant Maturity Treasury rate was 3.73%, also near historic lows.

• The lack of activity in private investment should begin to reverse as demand increases.  Judging from GDP data that indicates a significant uptick in business investment in equipment and software, businesses appear to be ready to spend even if consumers are not.