Forbes says recession will be over next month
The research team at Forbes.com reckon that the signs are good that we will have a sharp V shaped downturn, and that we’re now at the bottom. Read their justification for this bold view at their website, or below.
The Recession Is Over
Brian S. Wesbury and Robert Stein, 05.05.09, 12:00 AM EDT
Indicators point to a fast-approaching end date: May 2009.
If you want a bone to pick–or an economic argument to have–it should be about when the current recession actually began. The National Bureau of Economic Research, the U.S.’s semi-official recession arbiter, says it started in December 2007. But real gross domestic product grew at a 1% annual rate from then through August 2008. That doesn’t look like a recession to us.
Nonetheless, when Lehman Brothers ( LEHMQ – news – people ) collapsed and the $700-billion TARP plan was proposed, a very rare “panic” ensued. Monetary velocity collapsed. From September 2008 through March 2009, the economy shrank at a rate of 5.5%. That’s why we think the recession started in September 2008, not in December 2007.
Once the “real” recession started–the one that began in September–we consistently forecast it would be over by mid-2009, earlier than many (including the Federal Reserve) predicted. Now it looks like our V-shaped recovery is underway. When the NBER eventually gets around to declaring the recession end date, we think it will be May 2009.
New claims for unemployment insurance are probably the very best single indicator of the end of a recession. The monthly average for claims normally peaks one or two months before the economy bottoms–and it appears to have peaked in March, at 658,000, versus April’s 635,000.
Also, given that the September recession was marked by consumer spending falling off a cliff, we look at this measure to signal a rebound. Consumer spending grew at a 2.2% annual rate in the first quarter, and it looks set to rise again in the second quarter. Meanwhile, both major measures of consumer confidence (from The Conference Board and University of Michigan) shot upward in April.
The housing market is also showing nascent signs of life. New home sales bottomed in January at a 331,000 annual rate, but the pace of sales in February/March averaged 357,000. After falling 80% from January 2006 to January 2009, the rate of construction of single-family homes has remained essentially unchanged for the past two months, although (thankfully) it is at a level where builders are still rapidly cutting into excess inventories. In all likelihood, a bottom has been reached for both home sales and housing starts.
On the trade front, companies are increasingly willing to do business across borders. Inbound and outbound container traffic is up, at both the port of Los Angeles and the port of Long Beach. This is also a signal that credit conditions are easing, as international trade tends to be more credit-sensitive than domestic commerce.
Other signs of a rebound in monetary velocity can be found in prices. Consumer prices fell at a 12.4% annual rate in the last three months of 2008, the fastest decline since the Great Depression. In the first three months of 2009, however, prices are up at a 2.2% annual rate.
Meanwhile, commodity prices bottomed in February, signaling that the economy has turned a corner. In addition, Treasury bond yields are on the rise despite direct purchases by the Federal Reserve–an indicator that real interest rates have bottomed.
Add to all these signs April’s month-to-month jump in the ISM Manufacturing Index–the second largest in the last decade–and recent sharp increases in the Chicago PMI, the Philadelphia Fed Index and the Richmond Fed Index. All show the manufacturing recession is rapidly losing steam.
The end of the recession does not mean we won’t lose more jobs; employment is always a lagging indicator. And there will be more defaults, foreclosures and financial market problems too. But none of these are leading indicators.
In our view, there are no more shoes to drop.
Brian S. Wesbury is chief economist and Robert Stein senior economist at First Trust Advisors in Wheaton, Ill. They write a weekly column for Forbes.
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Comment 1:
Hmm, you see many of us could see that the US was already in (a type of unofficial) recession in late 2007/early 2008 because, even though the (USD measured) economy was growing 1%, the dollar had lost 20% against other currencies, therefore if the economy had been measured in Euros, they would have been waaaay into recession already. The total value of their economy was tanking.
Comment 2:
Unlike previous recessions, the damage done to the real economy via the costs of government borrowing, decreased wealth of ordinary people, decreased earning power of ordinary people, decreased employment and the (long overdue) return of the risk premium to risky assets means that the “sharp v-shaped” will not happen.
Comment 3:
The techincal analysis type arguments: “New claims for unemployment insurance are probably the very best single indicator of the end of a recession.” are based on the last how many recessions? Perhaps four!
Technical analysis is a tool to justify something you already want to believe.
Last Comment:
Lastly, it should be noted that the authors are NOT ‘the research team at Forbes’. Rather (as it says at the bottom) they work for First Trust Advisors.
Surf over to http://www.ftportfolios.com/index.aspx and you will see that First Trust markets a large range of exchange traded funds, and all sorts of other investments: “At First Trust, we are single-minded about providing trusted investment products and advisory services.”
Though of course this doesn’t make them wrong, they do have an interest in talking up the market.
I thing one of the most important key indicator is the consumer confidence.
When we gain back again the consumer Trust what was during the strong economic growth
The Conference Board reported a slight increased consumer confidence index in March and considerable improved in April.
http://www.conference-board.org/economics/ConsumerConfidence.cfm
However, we have to remember that we have room for improvement. In February,
this index was in the lowest level since its 1967 inception.
http://money.cnn.com/2009/02/24/news/economy/consumer_confidence/