A New York Times article today titled ‘Japanese Output Rises by 1.6 Percent’ says Japanese Industrial production rose in March for the first time in six months, and is poised to continue growing. The article also reported the Japanese central bank left its benchmark interest rate steady at 0.1%, held off further moves to boost corporate financing, but still expects Japan’s economy to shrink 3.1% in 2009 – higher than the 2% plus contraction it predicted in January. The rebound was led by a jump in electronic parts and machinery shipments. Japanese factory output is projected to jump 4.3% and 6.1% in April and May respectively. Japanese exports rose 2% in March from February, the first increase in nearly a year. These numbers are encouraging, but I continue to think for meaningful recovery to occur in the U.S. and the rest of the world – perhaps with the exception of China and other economies that hold large U.S.$ reserves – the U.S. job losses must be reversed and U.S. consumer spending must pick up significantly. So far that seems not to be happening.

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The Fed said this afternoon that it ‘sees signs recession may be easing’ and that the economic outlook has “improved modestly” since last month. That said, the Fed left the interest rate at 0.00% – 0.25%, and decided against taking any new steps to shore up the economy. Fed policymakers offered a less dour assessment of the economy than the one it provided in mid-March, saying:

• the economy has continued to contract, though the pace of contraction appears to be somewhat slower;

• economic activity is likely to remain weak for a time;

• while consumer spending has shown signs of stabilizing, it is still being constrained by rising unemployment, falling home values, and hard-to-get credit; and,

• weak sales and credit difficulties have forced businesses to cut spending and lay off workers.

The Fed’s statements are not what generally was expected – see earlier posts today. What the Fed said today is nothing new. I suspect the Fed is taking a ‘wait and see’ attitude – and the Mr. Bernanke not only has all of his fingers crossed, but all of his toes crossed as well.

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An article just released titled ‘U.S. economy tumbles in first quarter’ says:

• the U.S. GDP contracted by 6.1% in Q1 2009 as exports and business inventories plummeted. This was a much larger drop than the 4.9% drop expected by economists and follows a 6.3% Q4 2008 decline;

• an advance U.S. Commerce Department report shows business inventories plunged by a record $103.7 billion in Q1 2009, as firms worked to reduce stocks of unsold goods. This accounted for 2.8% of the GDP contraction. This was reported as good news because it suggests manufacturers and retailers have reduced the stock of unsold merchandise to manageable levels while concurrently recent manufacturing surveys have shown an improvement in new orders;

• exports dropped by 30% in Q1 2009, the biggest decline since 1969, after dropping 23.6% in Q4 2008. This decline accounted for 4.1% of the GDP contraction;

• business investment dropped 37.9% in Q1 2009, and residential investment dropped 38% – the biggest decline since the second quarter of 1980;

• consumer spending, which in the past has accounted for about 70% of GDP rose 2.2% in Q1 2009, boosted by a 9.4% increase in durable goods purchases, the first advance after four quarters of decline;

• U.S. home loan applications fell last week to the lowest level since mid-March, even as mortgage rates clung to record lows. The Mortgage Bankers Association said its mortgage applications index, which reflects demand for both purchase loans and refinancings, fell 18.1%.

Aside from the consumer spending statistic and inventory reductions, I don’t see any of this as good news in the context of near-term U.S. economic recovery. How, if at all, this data will influence the current ongoing Fed meeting and what the Fed says in its release planned for this afternoon remains to be seen.

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An article today titled ‘Recession Has Changed Lifestyles‘ says the current recession has forced a majority of Americans to alter their lifestyles, and many are upset about it, but that many are optimistic about their financial prospects over the next year. Of survey respondents:

• 56% said the recession has caused them to make significant changes in the way they are living;

• 25% said they are “angry” or “upset” about having to do so;

• 66% have lost a job or have seen someone close to them get laid off or lose a job; and,

• 71% have had their wages or hours cut or seen it happen to a close friend or relative.

Assuming the survey included enough respondents to make it statistically valid to a reasonably close tolerance (say even +/-5%) I think these percentages are quite remarkable. I say this considering that many economists were not acknowledging the U.S. was even in recession as late as 8 – 10 months ago, and pending release of April numbers the U.S. recession may be worsening. Think of things this way: Many people who have lived in the United States, Canada and the other G7 countries over the past – say 20/50 years – have lived comparatively (compared with most of the rest of the world) pretty idyllic existences. If you live in one of those 7 countries think how often when you ask your friends and acquaintances the question “How are you doing” you have been given the answer ‘not good’, ‘terrible’, ‘poorly’ or ‘sh—ty’. Unless your experience is different than mine the replies, even today, (irrespective of how those who are asked really feel) are ‘great’, ‘good’, ‘never better’, etc. It has been obvious to me as long as I can remember that ‘you can’t take things away from people’ and leave them in a happy state. If the U.S. and developed country economies do not come out of recession in the near term I think the results of surveys such as the one reported will only worsen. If the U.S. recession and recession in other developed countries worsens, I think it inevitable that the populations of those countries will become ever more unhappy – which cannot lead anywhere good.

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