Signs of Recovery?

On June 1 we pointed to three clear markers that signified the beginning of US economic recovery. As we enter July more and more economists are also reflecting on the signs that the US economy as a whole is returning to growth.

On Tuesday, Rebecca Wilder in her excellent blog "News N Economics," reflected, "The labor market is almost surely the key to this recovery." She goes on to illustrate the "lagging peak" in initial jobless claims and it's correlation to the end of the recession. Robert Gordon published that back in April and we also pointed to his article in early May. Gordon's striking association between a GDP contraction trough and the final peak in unemployment claims for a recessionary cycle seems increasingly likely at this point in history as well.

Wilder highlights more encouraging signs: "once claims do peak, they tend to fall rather quickly. Therefore, history suggests that [jobless] claims should start to drop off sharply in the second half of 2009 (coming months)."

On Wednesday, James D. Hamilton (Professor of Economics at the University of California, San Diego) examines an excellent paper by James C. Morley, Associate Professor, at the University of Washington. Summarizing the Morley paper, Hamilton notes in his Econbrowser blog that "often a sharp economic downturn is followed by an equally sharp economic recovery." Hamilton continues, "So why would anyone predict anything other than a robust rebound? Will we see a robust recovery? I can't rule it out."

And on Wednesday we heard what was likely the most positive news from Scott Grannis reporting on corporate layoffs. Scott observes that "layoffs have all but vanished." Layoff levels are essentially back to those observed during the growth years of 2004-2007.

Meanwhile the beginnings of recovery in real estate continued this week. "Lower mortgage rates are helping to support the housing market," said Freddie Mac Chief Economist Frank Nothaft. "The 30-year fixed-rate mortgage rate peaked this year over the week of June 11 and is now around a quarter-of-a-percentage point lower this week." The Mortgage Bankers Association reported an increase in mortgage applications even though refinancing activity is at its lowest level since last fall. That means that significantly more applications are now being originated for home sales.

That trend was further corroborated by the National Association of Realtors who reported a modest rise in pending sales of existing homes last month. Pending home sales now show a sustained uptrend, rising for four consecutive months through May.

And as we noted earlier in the week, commercial real estate sales are also showing renewed signs of life.

Comments

[Dave Wrixon:]

The metric I am going by for a sustained recovery is when you stop posting drivel.

Jul 05 08:19 AM

[TradingHelp...:]

Dave, are you suggesting 'hope' is flawed as a measure to gauge economic recovery? I jest of course.

Jul 05 08:48 AM

[Swashbuckler:]

This article would be more appropriately placed in the FICTION section of any library.

Jul 05 09:53 AM

[Chuck Carne...:]

Excellant article! When will all the negative Nellies learn that true Economic Power lies in productivity. Thanks to technological advances todays world economies are more productive than ever and growing more productive every day. Remember when the assembly line was going to destroy wages? The case for optimism is validated time after time. Yes, real problems do exist,but true economic power will solve them all. It's not about hope,it's about resiliency.

Jul 06 10:51 AM

[Jim Hawthorne:]

True layoffs have perhaps peaked; but then the 'expendables' are long gone, and in many cases, those still employed are working at reduced wages, reduced hours, or both! There is not yet evidence of increased hiring and increased spending.
As for initial jobless claims, let's remember that they last peaked back in springtime 2001; almost 2 years before we saw a true bull martket in equities!
Be nimble and flexible enough to play this stage of the rally up or down as it develops! "Buy and Hope" is a truly dangerous strategy at the stage! Good luck to all!

Jul 19 10:35 AM