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North American Region Update – November 2009
 
The US economy continues to improve at a slow pace. With the close of 2009 approaching, the overall national economic picture remains much the same as the previous month. Many major data releases over the past two weeks indicate that economic activity continues to pick up, but some indicators suggest that we still have some way to go in the journey toward stability.
 
The unemployment rate rose from 9.8 to 10.2 percent in October, while nonfarm payroll employment continued to decline (-190,000), the U.S. Bureau of Labor
Statistics reported. The largest job losses over the month were in construction, manufacturing and the retail trade.
 
 
Overall Growth Exceeds Expectations
Real GDP grew at a 3.5 percent annualized rate in the third quarter, a bit faster than expected for the advance estimate.  An increase in personal consumption expenditures (PCE) accounted for most of the growth (2.4 percentage points), yet positive contributions were partly offset by negative contributions from net exports and nonresidential fixed investment.
 
 
Housing Situation Inches Back
The positive contribution from residential investment—the first since third quarter 2005—is consistent with the improvement we’ve seen in monthly measures of residential construction, housing starts and permitting activity. The most recent data, for September, showed residential construction up 3.9 percent from August and up 7.7 percent from its low in June.  Nonresidential construction, though, has slid of late - falling 0.4 percent in September and 4.9 percent since April. The decline in nonresidential construction seen over the past few months would have been significantly worse if not for the contribution of public nonresidential construction
 
 
Manufacturing and Industrial Production Up, While Nonmanufacturing Treads Water
The manufacturing sector is most definitely rebounding: October’s ISM reading of 55.7 marked a tick up from September’s 52.6. The consensus had been for improvement in the index, as ISM values in the neighborhood of 52.6 are comparable to those seen in the first few months after the end of the past two U.S. recessions. The service sector, on the other hand, is basically treading water, according to the latest ISM nonmanufacturing survey. The composite index for October came in at 50.6, down slightly from September’s 50.9 and very close to the threshold value of 50 that demarcates expansion from contraction. Industrial production has increased over the past four months, though only a slight 0.1 percent in October. The third quarter saw an annualized 5.2 percent increase, about half of which represents growth in the production of motor vehicles and parts. These gains have come from extremely depressed levels, however; industrial production for October remained 12.3 percent below its December 2007 peak. At its lowest (in June 2009), industrial production was 14.5 percent off its prior peak.
 
 
Financial Markets Normalize Some
While financial conditions have, to a degree, become more normal, the volume of credit outstanding remains low. Key credit spreads are down substantially from their crisis peaks, though somewhat above their long-term averages: for example, the Baa-Aaa spread, with a long-term average of 90 basis points, has dropped to 112 from its December 2008 high of 337. Measures of the volume of credit extended to businesses, however, have continued to drift downward and are well below pre-crisis levels.
 
Credit volumes, of course, reflect both the supply and demand for credit—reduced volumes may reflect a weak demand for credit, as well as a constricted supply. The extent to which a tighter supply of credit is constraining investment is unclear, since, even as net fixed investment is low, the amount of cash nonfinancial corporations have on hand, relative to their capital spending or their sector output, is currently well above average.
In sum, financial markets—and the economy as a whole—seem to be on the path to pre-crisis stability. Some aspects, such as a still-faltering labor market, remain a threat to this improvement. As such, the horizon remains hazy and the future uncertain.
 
 
Summary
The economy is clearly improving. The Obama Administration’s focus is beginning to turn to job creation, which will attack the last leg of the recession improvement -unemployment.
 
 
If we look at ECM, BPM and BPO markets, the news is actually positive. Many companies delayed projects in 2009 and are now revisiting them. In addition, new rules and regulations will drive the need for compliance and Information Transparency. This will also drive the number of new licenses and new applications installed.