Economy Watch – Bernanke Says Recession Over–Technically

Federal Reserve Chairman Ben Bernanke, speaking at the Brookings Institution on Tuesday, said that the recession is “very likely” over. Or, to quote the chairman more fully: “From a technical perspective, the recession is very likely over at this point.”

A technical perspective recovery, however, isn’t likely to hire any workers for a while yet. “Many people will still find that their job security and their employment status is not what they wish it was,” Bernanke said, seemingly referring to those millions shown the door since the recession began six quarters ago, as well as those still a mite nervous about whether their bosses will be impressed by a technical perspective recovery.

Employees may be nervous, but at least some of them are visiting stores more than they used to even a month ago. The U.S. Department of Commerce reported on Tuesday retail sales in August were up 2.7 percent compared with July, with auto sales increasing the most–10.6 percent–on account of Cash for Clunkers.

But the federally subsidized car destruction program wasn’t the entirety of the retail uptick in August. Long-beleaguered clothing stores saw a 2.4 percent increase, as did the equally long-suffering department store sector. Book store- and sporting good store sales rose 2.3 percent each, and electronics specialists garnered a small (but respectable in this market) increase of 1.1 percent.

Still, no one is arguing that consumers are about to start spending again at even last year’s level–last year before Lehman Brothers, that is. Spending in August 2009 was 5.3 percent less than in August 2008. But the improved numbers this August still give retailers a glimmer of hope that the run up to the holiday season won’t be a catastrophe.

In the meantime, other kinds of commercial real estate still have their own problems to worry about, namely the timing and volume of defaults in the coming years. Such questions are of interest to owners and lenders, naturally, but also to investors looking for deals.

According to the third quarter 2009 PricewaterhouseCooper Korpacz Real Estate Investor Survey, released on Wednesday, most equity investors have remained on the sidelines waiting to capitalize on forced sales and more motivated selling on the part of distressed owners. Surveyed investors believe, like pretty much everyone who’s been paying attention to commercial real estate, that the massive amount of leverage used to fuel the buying frenzy during the peak of the bubble will greatly increase the number of commercial properties for sale.

But when? The report noted that for now, a bid-ask pricing gap still exists across all property sectors and geographies, and that the industry’s current challenges are also keeping some investors focused on asset management and value preservation rather than on new acquisitions.

“Investors are mostly waiting because of a lack of motivated and forced selling on the part of distressed lenders and property owners,” Susan Smith, director of tPricewaterhouseCooper’s real estate advisory practice, told CPE. “Although most investors feel that market conditions will continue to deteriorate over the next several months, the extent of the further deterioration is not so great that they believe that buying now is considered ‘bad.’ “

Property values on average have come down significantly over the past year, continued Smith, but further expected declines aren’t expected to be as precipitous. “Interestingly, it’s investors’ belief that as property values decline further and fundamentals deteriorate, the stress on lenders and owners will increase and bring about opportunities to acquire stable assets at distressed pricing,” she said. “Investors also believe that the industry will be at the bottom for a while, so there is no immediate rush to acquire. This is also where patience will come into play on the part of buyers.”

Wall Street apparently took Chairman Bernanke’s comments to heart on Tuesday, or maybe the retail numbers, and in any case advanced into positive territory. The Dow Jones Industrial Average gained 56.61 points, or 0.59 percent, while the S&P 500 was up 0.31 percent. The Nasdaq gained 0.52 percent.

— Nielsen Business Media