History…offers only one true double-dip experience, and that grew out of a policy error.
Many people are concerned the economy may take another turn for the worse in the upcoming months and are still wary about where it is safe to invest. However, some strategists believe a double-dip recession is not likely to happen. According to Milton Ezrati in an Investment News article, Partner and Senior Economist and Market Strategist, Lord Abbett states, “History…offers only one true double-dip experience, and that grew out of a policy error.”
There are many reasons why investors should have confidence in our economy. Two reasons are consumer strength and housing. According to Milton Ezrati, “…the market took it to heart when reports some weeks ago showed that retail sales in May dipped by 1.4%. But that sales decline followed a powerful 10% advance in retail sales during the prior 12 months.”
Some investors were falsely encouraged by the monthly housing statistics because of the first-time homebuyer’s credit. This did not prompt someone to purchase a home, but rather hurried sales of homes by the credit expiration date. However, Milton Ezrati states, “…the more significant consideration is the drop in the inventory of unsold homes by 27%; in fact, during the last 12 months, from the equivalent of 13 months’ supply during the 2008-2009 crisis to about eight months’ supply more recently.” The housing prices have increased as well this year and continue to do so.
Business spending and overall production levels have increased this year helping improve our economy. Companies also seem confident because they are beginning to rebuild their inventories. Milton Ezrati states, “Stocks of finished goods on hand rose at 6.0% annual rate between March and May (the latest month for which data are available), and work in progress increased at a 4.3% annual rate.”
Although unemployment rates are sluggish, they are still decreasing showing we are headed towards a healthier economy. Milton Ezrati states, “…the jobs market is slightly ahead of schedule according to…historical benchmarks.”
While the economy is still trying to recover from 2008, investors should try to focus on the upward trend in business and consumer spending. These two factors can help avoid a double-dip recession.