Signs of economic recovery ... or not

The third quarter showed great confidence in the form of stock market returns. We started off with better than expected earnings reports and a nice stock market rally. Consumers are wondering if the recession is over or is this just a tease.

There are many opinions of economists and analysts and anyone can choose what you wish to believe. Some say the recession is over and the economy is recovering, others say we are still in contraction. I believe it is worth taking a closer look at what the economic data is telling us.

Unemployment is considered to be a lagging indicator meaning we may still have job losses after we are in recovery. Some have named this a “jobless recovery” similar to the 1991 recession. Recently the unemployment rate rose to 9.7%. The nation is still showing job losses, not job growth. However there is slight growth in government and health care related jobs.

Housing appears to be stabilizing as there were increased sales in the last three months. Some cities, including Denver are showing the least rate of decline in housing prices and some analysts are calling a bottom here. However some believe the summer months may not be giving us a true measurement and any increases were largely on foreclosed properties. This again is a trend in the right direction but certainly not a significant recovery yet after over three years of recessionary housing prices.

Retail sales are also a good indicator of what the consumer confidence is and how well the household is managing. While back to school season helped some retailers, it was mostly the large discounters who benefited.

Consumer spending makes up 70 percent of the GDP number and with high unemployment and low housing prices it will be difficult to see much of a rise in GDP without the other indicators improving. Consumer savings are up and spending is down which are good lessons learned during hard times. Recovery will need sustainable, reasonable spending to gradually return.

Gross Domestic Product (GDP) which measures the growth of the economy in general is still negative by 1.5 percent for the second quarter 2009. Again, this is a nice trend up from where we were at the deepest part of the recession, but it is still showing the economy is in contraction.

The Consumer Price Index (CPI) is a measurement of price inflation or deflation. At 0.1 percent this is very low indicating a neutral position.

The Consumer Credit numbers declined significantly for the last several months. This indicator is popular since our credit crisis focuses on bank lending and the consumer’s ability to borrow money. There has been a significant contraction indicating once again the drag on growth potential without the consumer’s ability to borrow.

There are many other economic indicators that may be helpful but these are the areas most affected by consumers. Investors may be looking at different indicators, such as stock market trends, investment fundamentals, dividend yields and historical trends.

The overall picture looks significantly better than even a few months ago. My favorite analogy is the business cycle which moves from recession to growth and back again over a period of years. This would indicate that 20 months of recession is pushing the outer limits of previous contractions. Just by looking at the business cycle alone some analysts can determine we are nearing the end of ‘The Great Recession’ or the largest economic decline since the Great Depression.


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