Third Quarter 2009 Newsletter

Economic & Market Update

The collapse of Lehman Brothers in September 2008 sent tremors reverberating through economies worldwide and intensified the downturn already underway into the worst global recession since the 1930s. With a sense of urgency, policymakers around the world responded aggressively, enacting collectively more than 700 measures to stabilize financial systems and stimulate economic activity. Now, a year later, the unprecedented policy response appears to be gaining traction and helping to reverse the negative feedback loops that so exacerbated the global recession on the downside. Signs of recovery are unevenly distributed among the world’s major economies, but a nascent global upturn appears to be gathering strength.

Emerging Asian economies led by China are recovering the fastest, with several registering second quarter growth rates of more than 10% annualized. Even Japan’s output rose at an annual pace of 3.7%. Activity likewise picked up in the key European economies of Germany and France. Progress towards recovery has been slower in the US, where GDP contracted modestly in the second quarter. However, the third quarter GDP report, which is released in late October, is widely expected to show that growth has resumed. The index of US leading indicators has risen for five consecutive months through August, a trend that historically has consistently and correctly signaled recovery. Greater economic strength abroad is expected to reinforce the domestic improvements currently underway and provide a lift to US exports and the overseas earnings of US multinationals. Near-term prospects should also get a boost from a favorable swing in the inventory cycle, an intensifying impact of federal fiscal stimulus and greater stability in the housing market.

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Second Quarter 2009 Newsletter