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Good News Friday – Synergies

Good-News-Friday

Synergies

Two economic reports released this week suggest that some of the pieces of the recovery puzzle are coming together.

  • On Wednesday, the U.S. Bureau of Economic Analysis released its advance estimate of first quarter gross domestic product, stating that GDP continued to fall rapidly at an annualized rate of 6.1 percent.   However, personal consumption expenditures, which account for 70 percent of GDP, increased by 2.2 percent, the strongest growth since the first quarter of 2007. 

    Furthermore, inventory reduction subtracted 2.8 percentage points from top-line GDP.  The lean level of inventories suggests that factories may need to boost production while retailers may need to restock if personal consumption expenditures continue to grow in the coming quarters.

  • On Tuesday, the Conference Board announced that its index of consumer confidence increased for a second consecutive month, led by the expectations component, which spiked from 30.2 in March to 49.5 in April.

The rebounds in consumer confidence and personal consumption expenditures, if they can be sustained, are likely to multiply the impact of the American Recovery and Reinvestment Act – the $787 billion stimulus package passed by Congress and signed into law by the Obama administration.

The Congressional Budget Office forecasts that the ARRA will raise GDP in the range of 1.4 to 3.8 percentage points above a do-nothing scenario by year-end 2009 and create payroll job gains in the range of 800,000 to 2.3 million.  If confidence returns and spending continues, the impact of the stimulus package will fall near the upper end of these ranges, creating a bigger bang per stimulus buck.

Source: Robert Bach, SVP, Chief Economist, Grubb & Ellis

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