The “R” Word

In such a politically divided country, it seems that everyone can agree on one thing: “we’re in a recession.” Surprisingly, I hear people saying this more than ever. The first contribution to this unified opinion is that CNN, Bloomberg, FoxNews, and all the rest are incessantly talking about it.  Next, Americans can tell that their dollar buys less as inflation is at its highest level in decades. Finally, houses are staying on the market for longer periods of time and housing prices are declining. Evidently, most Americans believe a recession means a period of less individual purchasing power and declining home values. The true economic meaning of a recession is a retraction in economic growth and one started a long time before 2008.

I could easily argue that the recession actually began in 2001 after the stock market crashed on September 11th.  The events coincided with a dot com and technology market bust.   During this period of time, we witnessed a decline in American manufacturing and exports.  The only major industry that was late to see a correction was the housing market (i.e. real estate, the mortgage loan sub-industry, and construction).  The main influence to the housing market’s tardiness was the popular yet false beliefs that there would always be a demand for new homes and housing prices would always increase.

As prices continue to drop this year, you must remember that no commodity (land/building) declines forever.  A positive reversal, whenever it should happen, is inevitable.

A weaker US dollar has improved US industrial production.  Those worried about the effects of high oil costs, fail to consider that many companies are increasingly focusing on customers abroad.  Since the dollar’s massive decline against other major currencies, US exports have been steadily rising.  For example, China’s purchasing power and population are growing and relying more heavily on the following US industries:

- automobiles (in a decade, China will have as many cars as in the US)
- aircraft (China adds more than 100 airports annually and Boeing is a huge partner)
- agriculture (China is still growing fast and will import more US beef, wheat, soy, etc)
- culture (American television and cinema will grow in increasingly English-speaking China)
- tourism (Pretty soon, Chinese will be the world’s largest group of tourists. Expect them to visit major US cities, beaches, cruise ships).

Yesterday, we found out that the US economy expanded faster than economists had expected. Major consumer products maker Proctor & Gamble posted profits based on higher overseas sales.
So, the worst of the recession is behind us.

Besides, the US cannot continue to ignore lagging developments in infrastructure.  Urban areas are getting more congested and massive immigration is brisk.  Huge rail projects, bridge plans, highway projects (like the North American superhighway), apartment buildings, and suburban roads are all in the pipeline.  This will require major investment from governments and the private sector for the next decade.  Bloomberg reported on an Urban Land Institute study that found the US needs to invest $170 billion in order to relieve urban traffic and to rebuild aging structures. Worry not, economic production is on its way!