In Defense of Green Shoots

Several recent economic reports showed real growth in some areas of the economy. The green shoots famously noted by Ben Bernanke were mostly signs of optimism for the future, but lacked immediate realtime impact on our economic wellbeing. Or they were a slowing in the rate of decline (such as for auto sales), instead of actual increases. So, here is a list of signs of real growth reported within the past thirty days:

1) Housing Industry:

(A) Housing starts rose, both single-family and multi-family

(B) Sales of existing homes rose

2) The Consumer:

(A) Consumer spending rose (although retail sales,within that, continued to fall)

(B) Personal income rose

3) Manufacturing:

(A) Durable goods orders rose

(B) The factory production component of the ISM survey rose above 50, implying expanded production (although the overall index is merely contracting more slowly).

(C) Average manufacturing workweek hours rose (even as average workweek for the overall economy fell). This manufacturing component of the monthly employment report is one of the two employment indicators within the Index of Leading Econmic Indicators. The other one is initial claims for unemployment insurance, which has been improving since April.

As these and other indicators continue to strengthen, the economic recovery, which is now in its earliest stage, will become more apparent.

Comments

[whidbey:]

Green shoots or Change? There is a natural variance in data, and some misguided buying base on hope, speculation. Things were hopeful for the post March debacle, but likely just hopeful.

We/ you must look at the larger root problem of employment and jobs. These have not budged and will not so long as the administration holds deficit spending at the levels it plans. Temporary responses to this spending is not a recovery, just liquidity and hope.

Jul 10 02:36 PM

[johngonole:]

These data points are basically cherry picked. If they showed any trend at all they would have validity. But one month here for this or that is truly meaningless. Particulary the housing data. The manufacturing base is still shedding jobs. Its easy to increase work hours when you have less overall workers.

I think one green shoot to watch for would be overall rising disposable income. The government perhaps is stretching this whole downturn out since they are probably going to have to raise taxes at some point to start paying for all their obligations. That will wipe out disposable income. So basically our Keyensian friends are prolonging the pain. I'd rather rip the band aid off.

I'm afraid all this government spending is just going to result in the misallocation of resources to the same extent that the Federal Reserves low interest rate policies did. OK now I'm just too depressed to think about the insanity anymore tonight.

Jul 11 02:26 AM

[I need more...:]

You cannot be serious- is that you Larry Kudlow?

Jul 11 09:59 AM

[9999:]

There is no improvement year over year on any of your statistics. Monthly variances occur naturally. As soon as you see year over year improvement, then you can begin to an ending to this recession. Cheerleaders like you feeding this crap to the masses has made me a lot of money in the past year, please keep it up.

Jul 11 10:52 AM

[9999:]

Carnival barkers like you are losing a lot of people a lot of money. Until these numbers change year over year, the economy is still shrinking. These "green shoots" may take us out of a technical recession for a quarter or two, but we are in a long downward spiral. Only when our economy can produce more goods and services than we consume where we ultimately end this recession. Eventually countries will tire of producing our goods and getting paid back in inflated currency.

Jul 11 11:03 AM

[dirtyharry:]

Regarding your use of the housing industry as the basis for "green shoots," your statements hardly tell the whole story.

1. While true existing home sales rose, inventories caused by foreclosures INCREASED. To make matters worse, banks are currently holding millions of vacant homes off the market to try to support prices. The only reason existing home sales rose is because prices keep falling, and have finally fallen to the point that people inherently believe there is good value (there is NOT- yet).

2. True that housing starts rose as well, but this is hardly an indicator of anything more than builders' stupidity for building into a glut! Builders are starved for cash flow so they build, but they are only selling 50% of what they are building. So, not only did they get it wrong before by building to many homes, they are STILL getting it wrong by building TWICE as many homes in an attempt to stay afloat. For the purposes of the general economy, they shouldn't be building ANY homes as we already have close to a year's supply - a true glut. I don't know why anyone would use this as an indicator anyway. Placing faith in the same idiots that contributed to the original financial crisis doesn't seem like an intelligent way to plan out your financial roadmap.

3. Finally, in many markets, the resetting Option ARM loans are going to be devasting as borrowers have their payment DOUBLE on the them. The resets will start to increase later in 2009, and last all the way to the beginning of 2012. Worse yet, these loans usually have five year resets. That means, counting backwards, it can be easily seen that the borrowers that have these loans tended to buy their homes at the peak of the housing market. As a result, they have a house that immediately began falling in price after they purchased it, and a loan that immediately began increasing in size because they were making the "minimum payment". By the time their payments reset and double, they will owe as much as 25% more on their house compared to the day they bought it, and the house will most likely be down 40% to 50% in value. Do the math: This is an impending disaster. It will disproporationally affect certain states such as CA, NV, FL, AZ, VA, and WA.

The problems we are experiencing today originated in the housing market and this is by far the most dominating sector in terms of fiscal influence. If this sector continues to experience difficulty (and it will for the aforementioned reasons), frankly, nothing else matters. Someone's income rising even 20% will not make up for house payments doubling on them, or being underwater $250,000 on their personal residence.

>1) Housing Industry:
>(A) Housing starts rose, both single-family and multi-family
>(B) Sales of existing homes rose

Jul 11 11:45 AM

[David McSwain:]

Arnold,

Tough crowd huh? I appreciate you’re noting of positives. Keep looking for the green shoots, they will come, it is good to keep the crowd informed.

For today, I must agree with the crowd however. The fundamentals of rising unemployment, the Robin Hood programs of our government (stealing from everybody and giving to who ever will build political clout), and finally the Real Estate value crash are all too much for us to overcome quickly.

Jul 11 11:56 AM

[Juna:]

i think retail sales will be a huge indicator of whats to come. i think risks are tilted towards the print coming in below expectations

Jul 11 02:54 PM

[perceptions...:]

Can someone PLEASE tell Greenspan, that his greenshoots were shot at dawn and they ain't coming back.

Jul 11 09:09 PM

[DmytrenkoArtem:]

unemployment is leading indicator for US consumer economy.. elsewhere economic indicators that was mensioned is not so trendive...

Jul 11 10:42 PM