This is a post by guest writer David Ristau. David writes The Oxen Report on Phil's Stock World and is a contributor on Seeking Alpha. Follow David here on SA!
The official recession is over as many of us know from the fact that the economy is now growing rather than contracting. Yet, the economy that you and I live within, the unofficial economy, is still slow to recover. The five main signs for me that the unofficial economy will actually be recovering is when we see bank lending increase, home values rise, employment back to normal, incomes/consumer credits rise, and overall confidence rebounding. On some fronts, we are actually finally seeing the recovery we want to see, but it is slow to rebound.
Here are some of the latest signs:
Consumer Credit - In May, the S&P reported that credit defaults had fallen. It was the first decline the S&P had seen since December of 2009. Defaults of balances were at 8.9%, lower than April’s 9.1% rate. The number was also 8% lower than one year earlier. As consumer credit strengthens and less debt is on the hands of citizens, it shows a very good sign for the economy. If people are able to start eliminating credit, it shows recovery in jobs, confidence, and soon will lead to more consumer spending.
Income - The US Bureau of Labor reported that the average hourly earnings for the US worker rose 0.5% from April to May. Real earnings per hour have risen 2.1% since October 2009 when they were at the lowest. This is a great sign that rate cuts are no longer continuing, and companies are upping wages and giving new employees higher wages. The May 2009 and May 2010 average hourly earnings are now in line with each other, and we are on our way up. In addition to increased wages, the average hourly workers hours are increasing. In the month of May, private employees got 34.2 hours per week up 0.1 from April. The increase shows that companies need more work and are giving existing employees more work. This is good for income, and it is a sign that jobs are soon to come. As companies cannot supply existing workers with more hours, they will have to hire on new employees. In one year, average weekly hours have risen 0.9 hours.
Employment - Unemployment is the big ticket item, and it has been slow to recover. Seen before my very own eyes, I only know a handful of kids with full-time jobs that graduated with me in the latest graduating class. Yet, there are some signs that a recovery is on the way. In May, 37 states reported that they saw a decline in their unemployment rate as the national average dropped to 9.2%, according to The Bureau of Labor. 41 states and D.C. saw an increase in their ADP nonfarm payroll as 55,000 new jobs were added to the private sector from May 2009 to May 2010. This was also an increase from April to May. As companies continue to recover in revenue and earnings, they will continue to add more employees.
Home Prices - The CoreLogic Home Price Index showed that housing prices increased 2.1% in April 2010 from April 2009. It increased just under 1% from March to April. The influx in home prices shows a rise in demand, which is great for homebuilders and for the economy. As home values rise, consumer spending will increase. California, for example, saw a 21% price rise in their homes from 2009 in May. These types of increases are bubble-like, but as a whole, the nation is on the right track. If home prices can continue to bounce back, it will be yet another sign the economy is on the right track. Tomorrow, the Housing Price Index is expecting a 0.20% increase, which will continue the trend. It was helped obviously by the homebuyer tax credit, but as the economy recovers, a credit will no longer be needed.
Consumer Confidence - Consumer confidence continues to bounce back, as well. The Michigan Consumer Sentiment Index rose to 75.5 in its June reading, which is the highest rating the MCSI has gotten in two years. Estimates were from below to 70 to 74 at the highest level. This is extremely high rating is a great sign that consumers are starting to finally feel good about what is going on in the economy.
Bank Lending - This is probably the one area that needs to really turn itself around. There is still low demand for high loans as people straighten out their finances, and banks do too. Yet, bank lending is a good sign that small businesses, consumers, and large corporations all believe in the economy. This last reading showed more decline in February, so it is not up to date. A new reading should be out soon.
I would say we are starting to see the rises in the right departments, and the market is getting the bounce it should finally be getting due to the economics of things.