Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

Recession ending this year?

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According to the New York Fed, “Research beginning in the late 1980s documents the empirical regularity that the slope of the yield curve is a reliable predictor of future real economic activity.”

On Tuesday, the New York Fed released its latest “Probability of U.S. Recession Predicted by Treasury Spread,” with data through March 2009, and the Fed’s recession probability forecast through March 2010 (see chart above, click to enlarge). The NY Fed’s model uses the spread between 10-year and 3-month Treasury rates (currently at 2.61%) to calculate the probability of a recession in the United States twelve months ahead (see chart below of the Treasury spread).

The Fed’s data show that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then to less than 10% for December 2008 and January 2009. Looking forward through 2009, the Fed’s model shows a recession probability of only about 1% on average through the next 12 months, and below 1% by the end of the year (0.82% in December 2009). By March of 2010, the recession probability will be only 0.53%, close to the lowest level since mid-2005.

Further, the Treasury spread has been above 2% for the last 12 months, a pattern consistent with the economic recoveries following the last six recessions (see chart above).

Can Google search trends predict economic activity?

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Yes, according to Google economist Hal Varian:

Can Google queries help predict economic activity? The answer depends on what you mean by “predict.” Google Trends and Google Insights for Search provide a real time report on query volume, while economic data is typically released several days after the close of the month. Given this time lag, it is not implausible that Google queries in a category like “Automotive/Vehicle Shopping” during the first few weeks of March may help predict what actual March automotive sales will be like when the official data is released halfway through April.

Our work to date is summarized in a paper called Predicting the Present with Google Trends. We find that Google Trends data can help improve forecasts of the current level of activity for a number of different economic time series, including automobile sales, home sales, retail sales, and travel behavior.

Here’s an excerpt from the paper’s introduction:

Google Trends provides daily and weekly reports on the volume of queries related to various industries. We hypothesize that this query data may be correlated with the current level of economic activity in given industries and thus may be helpful in predicting the subsequent data releases.

We are not claiming that Google Trends data help predict the future. Rather we are claiming that Google Trends may help in predicting the present. For example, the volume of queries on a particular brand of automobile during the second week in June may be helpful in predicting the June sales report for that brand, when it is released in July.

Which companies bounce back faster post-recession?

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I thought the following research was interesting given all of the talks I have been give lately about developing a compelling value proposition:

Companies that concentrate on their core business dramatically improve their odds of success in a downturn. About 95% of the companies that qualify as “sustained value creators” — those that maintained at least a 5.5% real growth rate in revenue and profit over ten years while earning back their cost of capital — are leaders in their core businesses. They not only perform better during expansions but recover faster when growth rebounds from an economic slump.

During the last recession, for example, the average net profit margins of this group bounced back to 6.5% in 2002, only slightly below pre-recession levels in 2000. Their competitors fared much worse, with average net profit margins falling to around 1% during the same period, a drop of about 3 percentage points.

Source: Bain & Company — click here.

New I-9 Form Available

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US Citizenship and Immigration Services (USCIS) has announced that the new I-9 employment eligibility verification form must be used as of April 3.

Click here to read the U.S. Citizenship and Immigration Services (USCIS) press release.

Click here to download the new I-9 form.

Have we hit a bottom in housing?

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There have been some glimmers of light in the darkening economic picture, including retail sales for January and February and sales of both new and existing homes in February. It’s clear that ongoing market adjustments in key sectors are essential to eventual economic recovery and expansion.

The policy blitz coming from the Administration, Congress, the Federal Reserve and foreign policymakers certainly are helping to move the train down the track toward the recovery tunnel — and the light at the other end should be in view soon.

This economic recovery pattern cannot materialize without near-term stabilization of the housing sector, and let’s hope recent policy initiatives to help housing turn that corner.

Housing pundits are forecasting a bottoming for home sales in the first quarter of this year, a bottom for total and single-family housing starts in the second quarter, and a bottom for the residential fixed investment component of GDP in the final quarter of 2009.

National average house prices should stabilize within a few quarters, and the majority of the decline may now be behind us.

Yesterday, Diane Swonk released her housing market forecast on a particularly encouraging note. Click here for more.

Make your email count

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Given the number of emails you send every day, you should be an email-writing expert, right? In case not, here are a few tips for effective messaging:

  1. Ask for something. All business writing includes a call to action. Before you write your email, know what you’re asking of your audience.
  2. Say it up front. Don’t bury the purpose of your email in the last paragraph. Include important information in the subject line and opening sentence.
  3. Explain. Don’t assume your reader knows anything. Provide all pertinent background information and avoid elusive references.
  4. Tell them what you think. Don’t use the dreaded “Your thoughts?” without explaining your own. Express your opinion before asking your reader to do the same.

Source: Management Tip of the Day, Harvard Business Publishing

This week's highlights…

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  1. From Table 10 in today’s BEA report on Personal Income, real disposable income increased 2.2% in February, compared to February last year. This is the 5th consecutive month of positive growth in real personal income compared to the same month in the previous year, following negative growth in August and September of last year. The 2.2% increase in real disposable income is just slightly below the 2.3% average over the last four years.
  2. Rates on 30-year mortgages plunged this week to the lowest level on record after the Federal Reserve launched a new effort to assist the staggering U.S. housing market. Mortgage finance giant Freddie Mac said Thursday that average rates on 30-year fixed-rate mortgages dropped to 4.85% this week, from 4.98% last week. It was the lowest in the history of Freddie Mac’s survey, which dates back to 1971. FYI — in the 1981-1982 recession, mortgage rates peaked at about 18.5% in October 1981. The difference in monthly payments on a $100,000 mortgage at 18.5% ($1548) and a mortgage at today’s 4.85% ($528) is more than $1,000 per month!
  3. The National Association of Realtors (NAR) released its latest Housing Affordability Index (HAI) today, showing that housing affordability reached an all-time, historic record high of 173.5 in February. A HAI of 173.5 would mean that the typical household earning the median family annual income of $59,726 in February would have 173.5% of the qualifying income to purchase a median-priced existing single-family house ($164,600) with a 20% down payment, which would be the highest level of housing affordability since the NAR started reporting housing affordability in 1971.

  4. This week we are seeing some further positive notes in form of better-than-expected new and existing homes sales and durable goods orders for the month of February. These, and other positive, or even “less bad”, signs are a welcome change of tune.

Valuable data tool available

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GeoFRED™ is a data-mapping tool that displays color-coded data on the state, MSA and county levels. For example, GeoFRED can display unemployment, labor force and population for all U.S. counties. Users can select among 19,000 FRED® data series and customize these printable maps according to size, scope and detail. Those seeking to get a better handles on their local trade area will find this tool useful.

HT: NY Times Economix Blog