The state of the economy and future outlook (IPC webinar recap)

Great Depression it isn’t, but “Greatest Recession” it is, if you’re talking post-war. On Tuesday, IPC hosted another segment in the IPC Executive Webcast Series, “The State of the Economy and Future Outlook.”

What is the state of the economy? Robert Shrouds, veteran corporate economist for DuPont, had a few thoughts to share on the past, present and future of the economy.

So, What Got Us Here?
Shrouds points to one overwhelming event that kick-started this major global economic crisis: the “Lehman kink.” It’s a point in the economic charts where everything sharply dropped, that center around Lehman Brothers filing for bankruptcy in 2008.

The current crisis is a domino effect after Lehman’s bankruptcy abruptly cut off credit flows all around the world. Other banks worried this would happen to them, panicked, and it froze up the global financial situation. Jill came tumbling after, essentially.

The Finer Details
Since Lehman’s bankruptcy filing, Europe had a -3.3% gross domestic product (GDP), and Japan is double that at -6.3%. Even countries like China, that experienced a 4% growth during this time, experienced severely diminished growth compared to previous years.

Although our GDP is slightly better at approximately -2%, the “Lehman kink,” in combination with other factors, has not made a pretty picture in the United States.

First, between 2001-2007 people were using mortgage equity like an ATM, spending roughly $3.9 trillion on all manner of consumer goods, Shrouds explains. Then with the sudden spike in oil prices, and the banking/mortgage crisis, consumer spending went down even further.

Also, industrial production and manufacturing started falling towards end of 2007 and fell even faster after the Lehman bankruptcy filing, creating a -22% drop in the first quarter of 2009—the largest drop since 1975. The housing market, too, had been steadily declining since 2005, but plummeted drastically after.

There’ve been 6 million people unemployed as a direct result of this crisis, with Shrouds predicting 2 million more before September. While this is the highest rate of unemployment since the ’80s, it has not beaten the roughly 9 million unemployed in 1982. Shrouds also believes this will end in Q4 of 2009.

When Will This Madness End?
Shroud expects the downward trend to end mid-summer, and a 2.7% growth by Q4 of 2009, which is good, but not great.

On a federal level, the Feds have slashed federally funded interest rates down to 0%—something that has historically never happened before. As the economy improves, they will move to quantitative easing—financing around the banking system to offset de-leveraging in the private sector.

The highs of yesteryear are not here again … not until 2012 at the very least, Shrouds says. That’s when he predicts the global economy to move from “recovering” to “recovered.”

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