Thursday, October 08, 2009

Three Signs that the Economy Could be Poised to Boom

Every day there are new reports predicting how long the recession will last. Some assert that unemployment rates will continue to increase and that we have not yet seen the worst of the housing market crash. However, Peter Cohan of DailyFinance has put together a great upbeat blog entry explaining three signs that the economy could be poised to boom. Check out his informative post below.

Being optimistic by nature, I like to look for good news. So, a handful of recent articles on the economy struck me as a possible harbinger of good times ahead. These reports suggest that consumers and businesses are wising up by borrowing less, living within their means, and -- in the case of a lucky handful of companies -- piling billions of cash onto their balance sheets through initial public offerings. These developments could be laying the groundwork for an economic recovery.

Since 70 percent of GDP growth comes from consumer spending, the reports that consumer spending and borrowing are down clearly suggest short-term bad news. On Oct. 7, AP reported that more people are using food stamps and that more are cooking at home instead of going out to restaurants. With 15.1 million unemployed, this doesn't come as a big surprise.

Nor does news that consumers are borrowing less. Also on Oct. 7, the Federal Reserve reported that consumer debt outstanding fell in August at a 5.8 percent annual rate by $12 billion -- $2 billion more than Wall Street economists expected. Credit-card debt fell by 13.1 percent -- which is why, without cash-for-clunkers, it's unlikely that consumer spending will continue to grow at August's 1.3 percent rise. Indeed, the National Retail Foundation thinks 2009 retail sales will fall 3 percent.

Intriguingly, while consumers are re-equitizing their balance sheets, some companies are adding billions in equity to theirs. AP reports that just yesterday, two companies raised $10 billion in the IPO market -- more than 10 times the $917 million raised in IPOs during 2008's third quarter. Both were well-established companies: Banco Santander Brasil SA pulled in $8.1 billion, while Verisk Analytics (VRSK) -- a company I consulted to in 2002 -- raised $1.9 billion from investors.

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