The Recovery Is on the Horizon
Doom sells. When someone says "the sky is falling" it's easy to say "yes it is -- and we're all just plain going to hell." However, the data points of the last 3-4 months indicate the economy is bottoming. In addition, the leading economic indicators tell us the possibility of recovery is very high. Let's look at what the data says.
Let's start with the index of leading economic indicators:
The Conference Board LEI for the U.S. increased sharply for the second consecutive month in May. In addition, the strengths among its components continued to exceed the weaknesses this month. Vendor performance, the interest rate spread, real money supply, stock prices, consumer expectations, and building permits contributed positively to the index, more than offsetting the negative contributions from weekly hours and initial unemployment claims. The index rose 1.2 percent (a 2.4 percent annual rate) between November 2008 and May 2009, the first time the index has increased over a six-month period since July 2007, and the strengths among the leading indicators have become balanced with the weaknesses during this period.
Two months in a row of extremely strong readings is extremely important as it indicates there are strong currents of recovery in the making.
Then there was the news from the Census Bureau regarding durable goods:
New orders for manufactured durable goods in May increased $2.8 billion or 1.8 percent to $163.9 billion, the U.S. Census Bureau announced today. This was the third increase in the last four months and followed a 1.8 percent April increase. Excluding transportation, new orders increased 1.1 percent. Excluding defense, new orders also increased 1.4 percent.
This jibes with the news from several Federal Reserve districts regarding manufacturing. The New York Index has rebounded:
The general business conditions index fell several points from last month's level, dropping to (-9.4), but remained well above the string of deeply negative readings observed in the October-March period. This month, 28 percent of respondents reported that conditions had improved, compared with 23 percent last month, while 38 percent of respondents reported that conditions had worsened, up from 28 percent. After rising above zero last month, the shipments index retreated to -4.8. The unfilled orders index, at -10.3, was little changed. The delivery time index rose a few points to -10.3, and the inventories index fell to -25.3.
As has the Philadelphia Index:
Declines in the region's manufacturing sector were much less in evidence in June, according to results for this month's Business Outlook Survey. Indexes for general activity, new orders, and shipments showed notable improvement, suggesting recent declines have lessened dramatically. Indicative of ongoing weakness, however, firms reported sustained declines in employment and work hours this month. Most of the survey's broad indicators of future activity showed continued improvement, suggesting that the region's manufacturing executives are becoming more optimistic that a recovery in business will occur over the next six months.
And credit spreads have dropped to low levels, indicating the problems associated with the credit markets are easing:
And the ISM manufacturing index is clearly rebounding:
Now -- a word about employment. The unemployment rate is a lagging indicator. This means it drops after GDP starts to increase. Here is a graph from the St. Louis Federal Reserve that shows the relationship.
This graph plots the year over year percentage change in GDP with the unemployment rate. Notice that in each of the last three expansions the year over year percentage change in GDP started to increase before the unemployment rate went down. In other words, we have to have an increasing year over year percentage change in GDP before we can even think about talking about an improving unemployment picture. Put another way, using the unemployment rate before looking at the percentage change in GDP is putting the cart before the economic horse.
And speaking of employment, notice the the 4-week moving average of initial unemployment claims continues to drop:
The continuing improvement in this picture is incredibly important. As I have previously pointed out, the 4-week moving average of initial unemployment claims tops out right at or before the end of a recession:
Now -- let me add some caveats.
1.) I am NOT saying "isn't it wonderful that people are unemployed at high rates". I am also not saying "we shouldn't care about people who are unemployed." I am saying that the signs are there in more then a cursory fashion that the economy is bottoming and we will start to see positive GDP growth soon.
2.) Positive GDP growth is a prerequisite to employment growth. For those of you who disagree, please show me a time when a country had negative GDP growth and positive employment growth.
3.) Recovery comes in stages. There is no way we are going to wake up tomorrow and say "gee, isn't it wonderful having 4% GDP growth!" It is going to take considerable time for the economy to heal. A good analogy is it is impossible to turn around a battleship on a moments notice.
4.) However, the cumulative total of all the indicators says the economy is clearly bottoming. Combine that with a massive fiscal and monetary stimulus and the possibility of positive GDP growth is incredibly high.
5.) I have repeatedly stated I do not think the recovery will be robust. In fact, I think we'll be stuck in a 1%-2% growth rate with high unemployment for at least another year and a half or longer.
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I agree with the tenor of what you're saying, but think you do yourself wrong by not focusing on the ECRI Weekly Leading Index. Go look it up, much more sophisticated.
Mr. Bonddad. I have faith in your good intentions and confidence in your ability to draw conclusions from numerical data. But having no trust whatsoever in the source of your numbers I must disregard your assertion that "recovery is on the horizon".
Who is the CBT ? How much faith can one put in their numbers?
Is the CBT like the Treasury, pretending to be government but really a front for business trade groups ?
Is the CBT like NPR, who are using their reputation as an "in-depth analysis media" but only to sell Obama's pro-Wall St. con job of aiding, protecting, and abetting Wall St. firms to steal taxpayer money.
Note: I regret supporting Obama. Never voted Republican. I'm sure Obama will do some small good things for the American people over time.
From the CBT website, they describe themselves as ...
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For over 90 years, The Conference Board has created and disseminated knowledge about management and the marketplace to help businesses strengthen their performance and better serve society. The Conference Board operates as a global independent membership organization working in the public interest. It publishes information and analysis, makes economics-based forecasts and assesses trends, and facilitates learning by creating dynamic communities of interest that bring together senior executives from around the world. The Conference Board is a not-for-profit organization and holds 501(c)(3) tax-exempt status in the United States.
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What I truly struggle with is people who believe that just because a bubble in stocks formed and then crashed htat all of a sudden the benchmark is the previous high.
You have an economy that suckered 70% of people to shop more than they should have, got into massive debt, bought houses they couldn't afford. Kondratieff winters are about reconciling the previous debt through foreclosure, bankruptcy of both consumers and businesses, Throughout history this has happened and yet soemhow you think this time is different. Truly fascinating. Europe is in deflation, the US is getting there shortly, Asia ia the same, Japan is a basket case and yet you dream of green shoots.
The gall of people to not accept that maybe this time IS DIFFERENT!
You lived beyond your means and now its payback time. Consumers are hoarding savings and shunning credit just like they did int he great depression. These same stimulus programs existed then and the banks couldn't lend because everyone was so afraid of credit that the system folded in spite of the programs.
same here folks
Unless you start to build up a production base there is no healing. The neo-cons sold you out to the highest bidder abroad for the profit of a few.
And now Obama is expected to cut the deficit, end two wars and bring jobs to America ? And in this process his administration is hindered by those who want to prove him wrong in order to get elected next time. I am afraid conservative America will block any intelligent solutions as soon as they fear their money is endangered. Therefore it is possible, Obama comes up with half @ssed projects that cost money but don't get the job done.
The figures in your article may show the actual situation, still they so not reflect what is really happening on "main street". Wall street does not care, they can do to a large extent without the American customer. Their goal is profit and it does not make a difference if this is achieved in Asia, Europe or America.
http://www
"...It hasn’t been much more than a see-sawing of data,” Belsky said in an interview. “Housing has led the U.S. economy out of every recession for at least 50 years, and for that to happen again more stimulus is going to be needed.”
Leading Indicator
The residential real estate market improved ahead of the end of the past seven contractions, with home construction starts beginning to climb an average of seven months before gross domestic product picked up and sales gaining about four months in advance, according to data compiled by David Berson, chief economist of PMI Group, a mortgage insurer in Walnut Creek, California
There are so many undefined variables that could affect any imagined recovery, such as the US dollar no longer being the primary currency used as the world's reserve currency. Another is in continued increases in joblessness and underemployment. A Chinese constructi
Hale needs to look a bit more forward. There is a forest among the trees.
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I am not impressed with your conclusions because unemployment, toxic assets and lack of a credit flow will definitely be very destructive to our financial system. The second wave has not hit us yet but will Just wait and listen. The economy has definitely not bottomed and it will not do so for a while. Probably around the end of 2010. It will be about that time that most people will have run out of unemployment money and then in 2011 the pitchforks will start coming out. Nice charts but some things are not yet written or shall I say charted.
Wow, I didn't think our Bonddad was one of the permabulls.
First, the idea that doom sells is not true. In the MSM the number of permabulls far exceeds the number of doomsayers. All you have to do is watch CNBC for about 30 minutes.
Second, the fact that unemployment is a lagging indicator is nonsense. It was so in the last two recessions, barely in 1980 and not at all during the 70s. So according to your graph the result was 3 in 5. You know what has a similar record? Flipping a coin 5 times. If you took Statistics 101, you would have known that statistically this is meaningless.
Third, even if this was true, the current recession really has no precedent. It was caused by different forces than the last two recessions. It's like modeling hurricanes based on two summer rainy days.
Finally, what recovery are taking about? Of the utterly broken, unemployed consumer? How do you envision this recovery?
Well said! The WS BS Economy is having a rebound because that hide the "Off-The-Books" Debts and
Simply L 1 E about the value of what they have on the books!
This is a SHAME to help cover the Mafia that runs Wall Street!
The Old Mafia at least would punish you for stealing from the BOSS!
When we see new products in High Tech, Green Energy, Bank Automation, Health Care Automation, and an increase in sales of GM and FORD Hybrids then I will begin to believe the REAL Economy is rebounding!
The FAKE Wall Street Economy has little to do with Main Street!
With accounting SYSTEMS in Banking allowing ENRON-style "Off-The-Books" hidden debts and the Neutering of "Mark-to-Market" allowing Wall Street to L I E about what actually shows "On-The-Books" we can NOT believe the FAKE Market Boom is real!
Obama's Team has re-invested in continuing the FARCE that Wall Street Built and the DEBTS are all still hidden beneath the surface just like Geihtner wants it!
So we will see another round of HARVESTING of Main Street Wealth into the Pockets of his EL1TES Friends on Wall Street and in three other countries with their powerful banks!
Our FED and Treasury has invested between $12.8 to $13.8 Trillion in the FAKE WALL STREET Economy according to Bloomberg! Audit the FED for the FULL TRUTH!
And so far $45 Billion to the REAL Main Street Economy from the Stimulus!
OR
For Every $306 to the FAKE WS Economy (little or NO PAYBACK)
We see only $1 invested in the REAL Main Street Economy!
A recipe for Disaster as our Wealth is sapped away and we have NO Wealth Building Exports to offset that as No Country wants our TOXIC FINANCIAL EXPORTS anymore!.
So here's a novel idea - why not wait till the recovery is proven before you invest? Gee imagine that. There will always be investment opps. why rush into a Wall Street made scam dead cat bounce when you can sit on the sidelines and watch them get creamed for achange.
Yup - sounds good to me. I've been investing for 50 years and there are always opps - relax. Let Bondad invest his first.
"The latest report showed jobless claims were still over 600,000 for the 21st straight week. Jobless claims first passed 500,000 per week in November of 2008, and have now stayed there for 33 weeks. With weekly jobless claims staying over 600,000 for most of the June reporting period, it is reasonable to assume the unemployment for June will rise to somewhere between 9.5% to 10%. To bring the current weekly jobless claims stat into perspective, weekly jobless claims never reached 500,000 in either the 1991 nor 2001 recessions
The unemployment rate lags a return to growth. But the weekly jobless claims are closely aligned with GDP growth. So far they have not shown a return to growth. How will the economy recover when access to affordable credit remains extremely tight?
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House prices are still falling.
Main street is getting worse.
The strip mall crash is coming.
Obama wont renegotiate trade deals.
I want to point out two things.
The ISM index is not quite where it was when this started, but it's moving towards it still (Sept '08). I would keep my eye on that. Also, along the same lines, notice that when the great Chinese economic miracle starts to implode, people will go back to buying American. Another potentially positive sign.
The second thing, today's battle ships and other large vessels have bow thrusters, and they can turn on a dime, if they are going slowly.
I've heard something like this before -
"Victory in Vietnam is just around the corner."
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