Good News Points to Recession's End by July

There now seems to be enough evidence mounting. This recessionary cycle will likely be over by July.

You first heard that level-headed prediction from Mark Hirschey, Professor of Business at the University of Kansas back in November. He called all the dire commentary back then "overblown." Further he confidently stated, "If you look at history as a guide here, it would suggest that sometime between now and the Fourth of July in 2009, you’d expect business to once again turn up."

The evidence is now building that Hirschey may be right on the mark:

1. Macro uncertainty is subsiding quickly. In their excellent paper on economic uncertainty, Economists Bloom and Floetotto of Stanford University, propose uncertainty shocks as one of the primary impulses that drives business cycles. It is indeed these shocks in uncertainty that cause business to delay production cycles or trim staffing levels. But as uncertainty subsides, businesses re-deploy.

As you know many pundits are still warning that a dire recession is in the offing. Bloom and Floetotto would have been among them three months ago, but now, "based on the analysis of 16 previous economic shocks... and using the latest data on uncertainty measures, our model predicts that the worst has been avoided."

Further, they now claim that according to their model economic uncertainty is dropping so rapidly that "we believe growth will resume by mid-2009."

2. Credit is Flowing Again. In his excellent post on credit markets, Prieur du Plessis concludes that "the credit market tide seems to be turning." His in-depth look at worldwide credit indicators points to significant warming conditions since the "big chill" last October.

3. Global Commerce is On the Rise. The Baltic shipping indices are coming to life again. According Scott Grannis, the Dry index "has just about doubled from its early December low." Grannis further explains, that this closely watched shipping index is a high level indicator of trends and associated strengths on a global scale. Dr Mark Perry shares details about the index here.

4. The Consumer is Ready for Spring. You've also recently read that consumer confidence is now "surprisingly" up. The US Consumer when re-awakened will discover that all the commentary in October and November was overblown. Their spending this spring, will re-ignite any remnants of winter slowness in the retail segments.

5. Firms are Hiring. Although many companies announced layoffs as part of their year-end earnings announcements, these actions were largely to placate their stockholders. A vast number of them are now quickly reversing course and hiring aggressively. Indeed, several high profile private firms who don't have to bow to short sighted stockholders, have taken the opportunity to declare "No Layoffs -- Ever!"

Clearly the evidence for the end of this recession is mounting. As we actually approach the turn-around point, the increase in good news will be followed by the inevitable up-turn. Probably between now and independence day.

Hirschey will be proud and continue his calm analysis of economic cycles from his classroom. And Warren Buffett, will be raking it in yet again.

Comments

[Steven Hansen:]

while i hope you are correct about the end of the recession, your understanding on how large companies post job openings is incorrect.

even in downturns, big companies hire - even college graduates for the following reasons:
- expertise not in house
- different locations (do not want to pay relocation)
- change employment mix for anticipated future conditions

the job posting on the internet are for current employees also,

you can gain no understanding of employment trends by looking at company websites.

Feb 05 05:40 AM

[User 143167:]

I think you are joking but I like those optimism, but just for fun.
Well, did they even know it is not a merely economic cycle, but a credit cycle that happens only once or twice every century?

Feb 05 05:42 AM

[Maxi:]

I hope you are right but I have doubt about it. I think economy will not recover till 2010. These small indications are not quite enough.

Feb 05 06:07 AM

[Dave Wrixon:]

Stand Back from the Kool Aid!

Stand Back from the Kool Aid!

Feb 05 06:10 AM

[prudentinve...:]

I wish I could share your optimism!

Feb 05 07:52 AM

[Dave Wrixon:]

The problem is with this guy is he starts from a position.

News is what it is News. It should not be regarded as intrinsically good or bad, but merely as information.

If you start with an agenda and then you create pseudo information to further that agenda, it is called Propaganda, not News.

Feb 05 08:30 AM

[toobad41:]

Your summary of various "experts" and economic indicators seem to point towards recovery. I applaud that. However, there are other's that don't share your viewpoint. Depends, I guess, on how you read the cards. Forecasters make fortune tellers look good. Opinion and projection do not constitute a market trend. Being an optimistic capitalist, I hope you are correct.

Feb 05 09:06 AM

[kelm:]

The Baltic dry index is coming alive because of iron ore shipments to China. The Chinese stated last year that they were going to continue buying and keep their mills in operation while focusing their stimulus plans on domestic infrastructure development. So the only surprising thing here is that they are actually doing what they said they would do.

This is not a normal recession and anyone trying to map it against one is likely in for a very rude surprise. There are upticks in indicators but that is not surprising since nothing goes straight up or straight down. Are those indicators showing recovery or are they showing a intermediate term uptick that will be transient? The data is unclear and will be for some time.

Feb 05 10:17 AM

[ChipSeal:]

You can know it has turned from a recession to a depression if cosmetic sales are down.

Feb 05 10:55 AM

[It Figures:]

I find the resounding rejection of your suggestions quite encouraging.

Feb 05 12:09 PM

[The Good Ne...:]

@The Hand:
>you can gain no understanding of
>employment trends by looking at company websites.

Actually Steve, there is quite a bit you can posit from carefully watching what public companies post to their job boards... both internally and externally.

I have been employed by one public company or another since the mid-80s and have further counsulted for dozens of SMBs who are looking to grow their businesses.

And I've closely watched the activities on those boards. Back in 1986 one of the earliest electronic job boards was "in house" at GTE and part of the Tele-mail ("email") system. Several of the folks who created that went on to found AOL. It was no secret for those of us who had access, that the postings there could help us understand what business cycle GTE was in. Many of us who watched the activities on Telemail could predict with fairly decent accuracy whether on not the GTE earnings release was going to be gloomy or rosy.

And yes, the positions are for current employees also. But when I applied successfully for one of those jobs and successfully got the transfer... guess what? My old position opened up on the board... usually within a week. Just because those positions are for internal career advancement too, doesn't make the total jobs available at that company to outside candidates go down.

For those of us who have spent our entire careers in public companies, we can also tell you, that as you suggest the jobs boards don't give you the whole picture. In terms of TOTAL jobs available within, the numbers are actually much higher than the jobs boards advertise. "Hidden Opportunities" are everywhere. For the professional job seekers or seasoned veterans, who know how to create them, those positions are "created for them." And the other posted jobs on the boards are not eliminated when those veterans get hired.

So the reality is:
1) You can tell quite a bit about the total number of jobs a company is recruiting for by examining their job boards closely over time.
2) By examining the rate that new postings are going up, you can determine how aggressively a company is in entering a new business upturn.
3) The total number of jobs available at any given firm is quite likely to be much higher than what is posted publicly.

Ask any professional career counselor and you will find that they agree.

Thanks reading and commenting Steve,
GNE

Feb 05 12:12 PM

[Mr. Ed, Jr.:]

Over by July ? July is not the end of this. July is the intermission. Get yourself some popcorn and get back to your seats for Act 2.

Feb 05 01:23 PM

[rockerchic:]

Dude, share some of that stash, will 'ya?

Feb 05 01:47 PM

[disaster2008:]

It is too bad that many of these comments are so shallow and poorly written. If you have a point of view for or against, at least provide some context.

Feb 05 02:04 PM

[jepittman:]

It has been this way for awhile, particularly with this author. So many are pessimistic that nearly every time this guy tries to show the glass half full he is met with a cascade of derision, usually, as you point out, poorly thought out or just knee jerk negative gibberish. There is nothing wrong with being bearish on the market or the economy. But calling a bullish author a moron or suggesting he is on drugs is a more than a little over the top.




On Feb 05 02:04 PM disaster2008 wrote:

> It is too bad that many of these comments are so shallow and poorly
> written. If you have a point of view for or against, at least provide
> some context.

Feb 05 04:38 PM

[jepittman:]

I actually agree with you. I have many times wanted to point out the contrary indicator aspect of most posters on this site, particularly as it applies to this particular author. It is nothing personal and not directed toward anyone in particular but when such hostility to positive news is so nearly universal it has to mean an awful lot of bad news is priced in the markets.


On Feb 05 12:09 PM It Figures wrote:

> I find the resounding rejection of your suggestions quite encouraging.

Feb 05 04:43 PM

[Mr. Ed, Jr.:]

The "context" you seek is all over SA.

On Feb 05 02:04 PM disaster2008 wrote:

> It is too bad that many of these comments are so shallow and poorly
> written. If you have a point of view for or against, at least provide
> some context.

Feb 05 05:35 PM

[swikar jain:]

i think that it is the right time to invest

Feb 06 01:20 AM

[jepittman:]

Boy is it ever. If you look at the five most popular topics on SA they discuss the complete collapse of civilization as we know it in one form or another. Authors attempting to point out anything positive are either ignored or ridiculed to the point of rudeness (well not quite but sometimes it seems that way).

I have found over the years that John K. Galbraith's quote that 'in matters of economics the majority is always wrong' has been reasonably accurate. On SA the VAST majority seem to be very fearful and pessimistic. Time will tell.


On Feb 05 05:35 PM sittingoutthisrecessio... wrote:

>
> The "context" you seek is all over SA.
>
> On Feb 05 02:04 PM disaster2008 wrote:

Feb 07 12:40 PM

[The Good Ne...:]

Thanks Jepittman for the comments. I have been called far worse than a moron and high before and count it par for the course. But it is always nice to have someone watching your back.

I hope you had a chance to read my post on the Galbraith quote as it is one of my favorites: goodnewseconomist.com/...

The older I get and the more of life that I experience, I find that the best course of action in finance and other disciplines is to "break away from the herd."

My soccer coach would say, "kick the ball to where they are not." Thus the "good news economist" blog was born in this current stampede to the end of the world nonsense.

I guess I just read the book "Chicken Little" too many times when I was a kid.
Mmm, I wonder how many folks on SA have even heard of that book?

GNE
goodnewseconomist.com

Feb 08 05:51 PM