The economy appears to be heading back on track. This bodes well for liquidations.

Recovery from the most pervasive recession since the Great Depression continues to move in a positive direction causing some naysayers to change their tune and join the ranks of the bulls who have already concluded that the U.S. recession ended about mid year.  Has the final chapter for the recession that began in 2007 finally been written?  Is liquidation performance going to get back on track?  Let’s blog.

The high level of bullish optimism among analysts, economists and even CEOs stems from the release of the third-quarter U.S. gross domestic product (GDP) report which showed solid real growth at a better-than-consensus 3.5% annual rate.  This report covers numerous indicators and extends a run of positive economic reports that has consistently beat forecasts for about six months and counting.  Adding fuel to this fire is the outlook for continued improvements in corporate profits, the stock market’s recent strong performance and double digit improvements in U.S. manufacturing output in Q3.  This list goes on, but you get the picture.

The bears among us are casting doubt on the sustainability of the economic rebound particularly since it has been so heavily dependent upon government stimulus money that, they will point out, has generated short lived results.  The naysayers will also point to the U.S. unemployment rate which reached 10.2% in October, passing the double digit mark for the first time in more than a quarter century.  They will go on to tell you that payrolls declined for the 22nd straight month and that foreclosures jumped nearly 23% in the third quarter with expectations that foreclosure rates may accelerate in 2010 driven by high unemployment and more adjustable rate loans resetting to higher monthly payments.  This list goes on too but, again, you get the picture.

We will take our respective sides as we tend to do, joining the ranks of the bulls or the bears to debate the results.  Ultimately the real driving force for those of us who are focused on liquidation results is tied directly to the behavior of the consumer (otherwise known as the debtor in the ARM industry).  Since the unemployment rate continues to increase, and since foreclosures have climbed to levels never seen before, consumer confidence has deteriorated, marking a fresh low in September, a low that has only been surpassed once before — at the end of the early 1980s recession which, by the way, was the last time the unemployment rate was so high.

Therefore, I am sorry to say, we are not out of the woods yet.  The good news is that debtors tend to have their lowest level of confidence during the first part of the recovery because the indicators that affect them the most, jobs and housing, are reaching their peak.  Combating this are the companies that have stated their intentions to start hiring again and the companies that are suspending layoffs which are good signs the recession is starting to move behind us.  Interestingly, the ARM industry appears to be one of the sectors that is ready to hire again, according to our latest Confidence Survey results.

We expect that liquidations will continue to stabilize for the rest of the year and possibly improve compared to last year’s Q4 results given that liquidations declined last year as much as 45% to 60% in Q4 (not exactly impossible to improve on that performance). Despite the growing concerns in the commercial real estate market, liquidations of consumer portfolios will likely stabilize in Q1 of ’10 compared to Q1’09 as well given that most consumers have increased their savings rates and will want to continue reducing their debt loads – the government is also considering additional stimulus programs that may include another tax rebate if needed.

What are you seeing in your own recovery efforts?