The Great Recession is in the ninth inning and the home team is up by one run. As long as the other team doesn’t ties it up, the recession is over. As you can see, I am cautiously optimistic. We have come a long way from the market panic in the fall on ’08 and March ‘09 lows. The “green shoots” we started to see in Q2 and Q3 have led to stock market rebound of almost 55%. The stock market usually moves six months ahead of the real market.
The Conference Board said recently that its index of leading indicators rose 0.6% in July – its fourth consecutive gain – suggesting the economy has bottomed and the recession will end this summer, if it hasn’t already. On Tuesday, The Conference Board reported its gauge of consumer confidence jumped to 54.1 in August from an upwardly revised 47.4 in July. Economists had expected a milder uptick to 47.5. Consumer confidence number over 50% is bullish. When you start to hear economists proclaim the recession is over, they’re celebrating the technical meaning, they mean economic output has stopped contracting.
Economic activity “will increase slightly over the remainder of 2009,” Federal Reserve chairman Ben Bernanke told Congress. As a result the Fed will stop some of it bond buying activity, signaling that the Fed is less concerned about liquidity in the market.
Some the concerns in the ninth inning of the recessions are that unemployment rate remains north of 9% and foreclosures are near all-time highs. Since December 2007 The U.S. has lost 6.5 million jobs and spurred the sharpest rise in the unemployment rate since the 1930s. As manufacturing jobs move overseas and companies struggle to further reduce costs, unemployment, which stands at 9.5 percent, is likely to rise above 10 percent, but jobs are trailing indicator. Recent job losses have dropped 60-70% from their peak. The temp job market recovers first, so keep an eye on that. Employers want to feel confident about the business environment, so mass fulltime employ happens only when the economy is well out of a recession.
WANTED Technologies forecasts that Nonfarm Employment Payroll will drop by 190,000 in August. Last month the BLS reported a decline of 247,000 nonfarm workers, substantially down from the 700,00+ declines earlier in the year.
The stock market is a lead indicator and the marker has recovered more than half of its losses. The S&P 500 stock index bottoms, on average, four months before the recession ends and never by more than eight months. This year the S&P 500 bottomed on early March.
My brother-in-law toke that drive from MA to NJ for the weekend and he talked of all the infrastructure work going on, which cause his trip to take twice as long. That infrastructure work and much of the positive economic data is simply the result of government action (the stimulus plan) and stabilization of banks and credit markets. Seems like Keynesian economics, a theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability (especially in recessions), is working, or at least prevented a depression. Goldman Sachs predicts Global GDP for 2009 to be 4%. All other recession have ended so will this one.
The jobs numbers are important to a full recovery and a booming economy. I think in Feb 2010 we’ll have positive jobs numbers. Indeed.com had about 2.8M jobs listed on the site when I did a search for ‘a’, top occupation Physical Therapist, top employer Pizza Hut/YUM Brands, top location NY, and there are almost half million jobs list with salaries over $100K.
By Feb 2010 the stimulus plan will be in full swing, employers will have new budgets and consumers should be even more optimistic. To keep the economy rolling after that we will need to stop relying on government stimulus funding and interest rates need to rise above 0%. In addition, inflations (not currently an issue) will need to be managed and the national debt reduced.
We are a long way from the go-go days of a 5% unemployment rate, 7 or 8% is much more likely than 12 or 13%. After a category 5 hurricane, thunder storms don’t seem so bad. Let hope our star “closer” can pitch his way to a win in the bottom of the ninth.
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