NPRA ’09: US economy to bottom in Q3, see Q4 growth

30 March 2009 17:37  [Source: ICIS news]

SAN ANTONIO, Texas (ICIS news)--The US economic decline may hit bottom in the third quarter this year and could return to growth by the end of the year, a former White House economic policy chief said on Monday.

Todd Buchholz, who served as a top economic advisor to President George Bush in 1989-1992, told an audience at the International Petrochemicals Conference (IPC) that “the economy is lousy and there are few indications that it is turning around”.

However, he said, there are a some minor signs that things soon may improve.

For example, he said, “in the last few weeks there have been some data points suggesting that the housing market may be turning around”. He was referring to recent and unexpected improvements in US new home construction and new home sales.

“I think it is premature to say that the housing sector has turned around,” Buchholz said.

But he noted that the number of home sales in some California markets - among the hardest hit in the housing collapse - has increased by 50% recently, driven by very low housing prices and low borrowing rates.

The US housing sector is a crucial downstream industry for the nation’s chemicals manufacturers because it consumes a high volume of chemicals and derivative products.

“I think it would be premature to say that the housing sector has hit bottom, although that may happen this summer,” Buchholz said. "But the housing collapse is over.”

He said the US employment picture remains troubled and that there will be still more layoffs, but he noted too that employment and jobless data typically lag behind other economic indicators and that layoffs are tapering off.

Buchholz also said that financial news media tend to paint unemployment as worse than it really is, with news reports saying that the some 650,000 job losses in February equalled unemployment figures of the 1981 recession.

“But most of those reports fail to note that the country’s workforce is much larger now than it was in 1981, and if the rate of unemployment were as bad now as it was in 1981 the job losses wouldn’t have been 650,000 but more like a million.”

He pointed out that despite the heavy job losses, 90% of US workers still have their jobs and that with prices collapsing for commodities and the whole range of consumer goods, workers’ purchasing power has increased. 

“Data on household disposable income has moved into positive territory,” Buchholz said. 

“That disposable income and improved purchasing power have not been deployed yet because it can take up to nine months to restore consumer confidence,” he said, “but I think we will see it expressed this summer and into the fall.”

Buchholz spoke on the second day of the three-day IPC, which is sponsored by the National Petrochemical & Refiners Association (NPRA).

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