The Macroeconomic Advisers, a St. Louis consulting firm that calculates a monthly GDP, finds third quarter GDP tracking at a healthy 2.4 percent clip, up from the 0.1 percent decline throughout the second quarter. For comparison, 2.8 percent GDP growth is about where we were in 2006 -- it's not extraordinary, or even very good -- but it's not a recession. It's difficult to verify that statistic officially, because the Bureau of Economic Analysis takes months to estimate and revise quarterly GDP growth. But Gross calls for backup and finds it at the Economic Cycles Research Institute.
ECRI asks us to ignore the most talked-about economic indicators -- like consumer spending, which looks ugly, and unemployment, which looks even worse -- because they are lagging indicators of economic health. Instead, it breaks down leading indicators into long-term (credit, housing, productivity, and profits) and short-term (stocks, jobless claims) and tracks upticks that are pronounced, persistent and pervasive.
ECRI finds the long-term indicators have been on the rise since December 2008 and the short termers have all begun to rebound. For example, here you can see quite clearly the recent peak in jobless claims.
So is it only a matter of time before unemployment, the most public indicator of them all, joins the recovery party? Not so fast. The last two recessions -- in the early 90s and after 9/11 -- were shallow drops in GDP corresponding with lengthy periods of lingering unemployment. There are plenty of theories for this -- I've documented some, such as structual changes to the manufacturing industry and the failed promise of US innovation, here -- but the pull-up is that we have no idea how long unemployment will continue to grow or how fast it will subside after all other economic engines are go. As Gross concludes: "The recession is over! Let the jobless recovery begin!"
One leading indicator I've seen not widely talked about, but which seems worth considering, is the length of the average hours worked per week by hourly employees. If there's about to be a recovery, the existing employee base should be raking in plenty of overtime while management decides whether the situation justifies hiring more workers.
Instead, the average workweek is, IIRC, below 35 hours -- and management is apparently trying, by and large, to avoid layoffs as long as possible.
Doesn't sound like a recovery in the making to me.
This is the obverse of all that Goldilocks bs we used to hear from people like Kudlow, Laffer and Stein, as the financial system and mainstream economy slipped into the worst crisis since the big one. It all bears more than a passing resemblance to Canute. Is the economy growing again, probably not. Has the free fall been halted. Almost certainly. If you asked me we're treading water with some very and I mean very modest move to the upside. It's showing in corporate profitability and the market, and in areas like Housing starts and retail spending. Speaking as someone who has been through five of these, the current situ looks very like all those other periods when the economy started a recovery. Lot's of mixed signals and lots of bloviating in the media (much of it political as this is). The tide is turning whether the modern day Canute's want to recognize it or not. And another prediction, despite consumer indebtedness we might be suprised by the strength of the snap back when it happens. Profitability may surprise too given the amount of capacity that has been removed from the system. To give one example. Best Buy will probably pick up most of Circuit City's business and a lot of mid sized electronics and appliance retailers will benefit too.
Hmmmm...ECRI asks us to ignore consumer spending when measuring the economy. Since consumer spending is 70% of the nation's GDP, does that make any sense to anyone?
How can we be on the cusp of a strong recovery, or any recovery at all, when freight transports are all sharply down? The Port of Long Beach's container traffic is down 28% from July 2008. All the railroads are reporting 20% to 30% declines in shipments YOY. Roughly the same for the trucking companies.
State sales taxes are all still in the toilet. The nation's leading mortgage insurer just stated it would no longer write policies on any mortgages that did not have at least 20% down payments. As joblessness increases, more houses will go into foreclosure.
Recovery? Yeah, right.