With the unrelenting day in, day out barrage of negative economic forecasts, it’s easy for signs of possible recovery to go unnoticed. However, several such signs may actually be lurking right under our noses. While there aren’t many signs of sharp, dramatic improvement, things appear to be improving at the margins of the American and world economies. And as the old saying goes, “you have to crawl before you can walk.” We thought it would be helpful (and hopefully inspiring) to assemble these possible recovery indicators in one place, and here are ten of the most compelling.
Rising commodity prices
In March 2009, Bloomberg noted that commodity prices (such as oil and agricultural products) were bottoming out and that a recovery was therefore due. Their article on the subject focused specifically on the implications for China, but applies more broadly to the world commodity market as well:
“We have seen most of the aggressive contraction in these markets,” said Hyde. “We are starting to form a bottom and are in the late stages of a recession.”
Bloomberg goes on to predict a rise in commodity prices later in 2009, which has, in many ways, come to fruition. The UK’s Guardian writes on August 13 that, “…if you believe the price action in the commodity markets, the global recession is history. Oil is north of $70 a barrel, copper has doubled in value since April and nickel is at levels last seen when the world’s banks were facing meltdown last autumn.” CNN Money also found that white sugar was trading at record levels on August 3, with gold likewise trading at, “close to record levels.”
Rising consumer incomes
While the millions of recession-induced layoffs are impossible to ignore, many are unaware that individual incomes (for those still employed) are rising and have been rising for quiet some time. As CNBC reports in its article “Recovery Indicators are Being Ignored”:
“Consumer incomes, after tax and adjusted for inflation, have increased for five straight months, which is largely from the tax-cut effect of plunging energy prices.”
This fact is often obscured by economic doom sayers who point to declining household income statistics, ignoring that households are not people, but statistical categories. The fact is that real, flesh-and-blood individual incomes are rising (despite the undeniable wave of layoffs.) Since consumer spending will be key to any sustained recovery, rising incomes could help set the table for such an event.
Increased home affordability
Frightening as double-digit unemployment rates are, this is not the only indicator of economic health or vitality. We also need to determine the ease with which various transactions can be made by the individuals who make up the economy. One good measure of this is home affordability – that is, how many first-time home buyers can, in fact, buy their first home. In many areas of the country, home affordability is actually rising, due in large part to the housing bust. In his book The Housing Boom & Bust, economist Thomas Sowell writes that California was hit by the bust harder than perhaps any other state. However, SignOnSanDiego.com noted on August 14 that, “…San Diego County’s declining home prices have boosted first-time buyer affordability to 59 percent, more than twice what it was two years ago.” The Wall Street Journal also declares that, “…home sales are up in southern California”, citing a 19% increase from a year prior.
Rising (though modest) manufacturing growth
Another encouraging sign of a possible recovery was the manufacturing growth that Bloomberg reported on August 17. Focusing on growth specifically in the New York region, Bloomberg quoted economist Tom Porcelli as claiming:
“Inventories were drawn down to such amazingly low levels that companies need to start bringing them back. We are coming out of the recession. It’s probably over at this point.”
This news arrives just six months after New York’s manufacturing index dropped to a record low, triggered by the reduced production levels that Porcelli alluded to above. Perhaps the manufacturing pulse in New York indicates a broader (though still modest) trend for the rest of the nation.
Renewed foreign interest in US bonds
One of the most feared consequences of the recession (at least from the United States’ perspective) is that foreign countries would cease buying our bonds, or even engage in a massive selling off of their held bonds. However, at least for now, this fear looks to be unnecessary. The Wall Street Journal notes:
“Overall, foreign investors bought $90.7 billion more in long-term U.S. securities than they sold in June. In May, foreign investors sold $19.4 billion more securities than they bought. China reduced its Treasury holdings from $801.5 billion in May to $776.4 billion in June. But other countries, including Japan and the U.K., slightly boosted their holdings.”
Since much of the United States’ financial muscle derives from its debt instruments, foreign nations continuing to buy these instruments constitute a legitimate reason to feel positive about the economy. China’s reduced holdings are, of course, still a concern.
Confidence index highest since June 2008
Consumer confidence is a valuable indicator of economic health, and at least one index is reporting favorable progress, according to Bloomberg:
The National Association of Home Builders/Wells Fargo confidence index climbed to 18, matching the median forecast by economists and reaching the highest level since June 2008, the Washington-based group said.”
This index measures, “…present sales, six month sales expectations and traffic of prospective buyers” in an attempt to determine economic health via home building statistics. The AP concurs that single-family home building has been rising for five straight months. When taken in combination with the increased home affordability discussed earlier, these two indicators paint a happier picture of the future than we had once expected.
Greater demand for automobiles
While the long-term economic impact of President Barack Obama’s “Cash For Clunkers” program remains to be seen, there can be no denying its early success as measured by new auto sales. On the heels of reports of first-week sales in the 220,000 range, the New York Times reported on August 7 that the popular program was receiving a $2 billion funding boost, in addition to the $1 billion originally earmarked. Citing its interviews and research for the story, the Times noted
“Major automakers said in a letter to senators the current $1 billion program has helped their companies, suppliers, scrap yards, steel producers and other small businesses.”
Additionally, ABCNews reported that the government giveaway program will spur the production of 60,000 new vehicles by beleaguered and recently bankrupt General Motors. This can only be taken as good news for the one of the industries hit hardest by the recession.
Inflation bottoming out
A common economic fear (especially following the burst of a bubble) is runaway inflation that will eat away at the savings and wages of working Americans. While we may not be entirely out of the woods yet, TIME Magazine reports that July’s inflation report clocked it at negative 2.8%, which, “…will stand as the low point for inflation in this economic cycle.” TIME also opines that Federal Reserve chairman Ben Bernanke has, “…does appear to have succeeded” in preventing the type of wildly fluctuating inflation/deflation cycles that ravaged the Great Depression from materializing today.
A recent consumer spending high
Skeptics of the idea that the economy is recovering correctly point out that true economic recovery includes rising consumer spending. While an enduring trend remains to be seen, a recent Gallup poll reports that the week ending on August 16 saw the highest consumer spending of the year, perhaps spurred by back-to-school sales. Gallup states that, “…self-reported average daily spending in stores, restaurants, gas stations, and online increased $13 per day, representing a 20% week-over-week increase and the highest level since the Christmas holidays”, during that week, noting also that consumer confidence was at a yearly high on the basis of 40% of respondents saying the economy is “getting better.”
Forbes concurred in their article “The Consumer Recovery”, stating that consumers, “…ratcheted up their spending by 0.4%” in June following a “micro-bump of 0.1%” in May. Forbes attributes this largely to more consumers feeling as though they have survived the worst of the recession and therefore coming out of their shells somewhat with regard to spending.
Growth in the European economy
The recession is a global one, and in many ways, America has not even been hit the hardest of all. It is for this reason that Europe’s recent second quarter economic surge constitutes hope for us all. According to the New York Times:
“The sharp improvement from the first quarter underscored just how far Europe and indeed the global economy had come since a harrowing free fall in late 2008.”
Leading the way were the economies of France and Germany, estimated to have grown 0.3% in the second quarter, while the Times also noted that, “…some leading forecasters expect growth of up to 9 percent in China this year and more than 10 percent next year.” This comes on the heels of the EU’s first quarter contraction of 2.5% as compared to the final three months of 2008. As a major trading partner of the U.S. and the world, Europe’s prosperity is welcomed by virtually all developed economies.