An expected positive Q3 GDP reading will technically end the recession and the rebound should continue into Q4. The question though is what the sustainability of growth will be in ’10. Consumer demand will be the key factor in how that question is answered and the labor market outlook and thus the ability of consumers in servicing their debt will be the focus. In quantifying the huge debt load that our country carries, the Fed will release today the Q2 Flow of Funds statement which is a balance sheet of our country. In Q1, household debt (home mortgages + consumer credit) as a % of disposable income was at 120%. While that is down from the record high of 127% in ’06, we are still well above the level of 89% 10 years ago. Just as a company’s growth gets weighed down by too much debt, a country can be hindered by the same and that is why the deleveraging process at the consumer level is a freight train that will not be stopped by gov’t policy.
In the timeliest snapshot of the labor market, Initial Jobless Claims are expected to total 557k, up from 550k last week which was the lowest since early Jan, not including the seasonal distortions related to the auto sector in July. Continuing Claims are expected to rise by 12k and the Emergency Unemployment Compensation component will also be a focus as people fall off out of the Continuing Claims category before they find a job. Aug Housing Starts are expected to total 598k annualized and that would be the most since Nov ’08 and 120k above the low in April. Permits are also expected to rise but the sustainability of building will in the short term solely dependent on whether the home buying tax credit is expanded or not. The Sept Philly Fed survey is expected to rise 4 points.