Posted by: Joe Weber on May 27
When winter breaks, there is usually a stretch of time when the ice just lingers, not ready to quite give up its hold. That seems the case lately with the recession, which seems reluctant to yield, even as a growing number of indicators suggest the worst may be behind us.
The indicators, summed up nicely by economist Asha G. Bangalore of Northern Trust in her May 26 Daily Global Commentary, show an economy that is opening up but has a ways to go yet. Call it the big thaw. Or, as Bangalore puts it, “in sum, economic conditions are improving.”
The Chicago-based economist points to the Chicago Federal Reserve Bank’s national activity index to make a key part of her case. In April, it moved up from March, climbing from a negative 3.36 to a negative 2.06. Readings below zero, Bangalore notes, reflect an economy growing below trend. But the trend line is clearly rising, since the index had hit bottom in January at negative 3.99.
The national activity index is a remarkably broad indicator, based on 85 different measures. They fall into production and income, employment, personal consumption and housing, and sales, orders and inventories. All four of these segments improved in April, Bangalore reports. And, if one looks to the 3-month moving average of the index, the picture is even brighter – it clocked in at negative 2.65 in April versus negative 3.29 in March, after bottoming in January.
Historically, Bangalore notes, a turn like that in the 3-month moving average has been associated with the end – or imminent end – of recession. She says, “the main message is that the U.S. economy is approaching the trough of the recession…”
Beyond the Fed activity index, consumers seem to be feeling better. The Conference Boards’s Consumer Confidence Index rose in May to 54.9 from a revised 40.8 level in April. Both the so-called “present situation index” and the “expectations index” rose. And Bangalore notes that the big jump in the April-May stretch was the second-largest two-month gain seen in the history of the survey.
Finally, there’s the S&P/Case-Shiller Home Price Index. This 20-city composite, which has become the most widely watched barometer of the housing industry, declined 2.2% in March, matching a February drop. Year over year, it was down 18.7% in March, roughly the same decline it saw in February. But even there, Bangalore could find hints of progress: “The sideways movement of the year-to-year change in home prices and the fact that fewer metro areas show an accelerating trend of price declines are pointing to a possible turning point,” she says.
Let the thaw proceed!
BusinessWeek’s Joe Weber, Patricia O'Connell, Michelle Conlin, Frederik Balfour, Peter Coy, Greg Spielberg and Roger Crockett examine The Case for Optimism by looking past the financial turmoil and economic unrest gripping the globe to focus on the promising future that lies on the other side of this storm. We’ll chronicle the forward thinkers investing in R&D, launching promising new products, entering new markets, or implementing management and leadership.
See why BusinessWeek Editor-In-Chief Stephen J. Adler is optimistic about the economy amid the sharpest downturn since the Great Depression.