Eight signs that the recession is over
I recently delivered a Webinar, Economic Outlook: U.S. and Key Industries, and got asked a very interesting question -- How will we know the recession is over? With Thursday's report that productivity grew 9.5 percent while the number of people added to the unemployment rolls hit 512,000 in the last week, the signals are not exactly clear.
But my answer to the question is that people can follow eight indicators to know whether we're out of a recession. My best guess is that these indicators will not all flash a green light suddenly or at the same time. But if you follow these indicators over the next few months and monitor changes in them closely, you may get some meaningful signs of whether the recession is over.
Before jumping into these indicators, there is one more thing. As I've posted, the National Bureau of Economic Research (NBER) officially decides when recessions begin and end and they dated the current one from December 2007 -- the month that jobs started shrinking. So that is one of the indicators that I am tracking. But without further ado, here are the eight:
- Interest rates. Wednesday the Fed announced that it would keep rates low for the foreseeable future. This means that the Fed believes that the risk of a deflationary spiral -- which leads to economic contraction -- is greater than the odds of inflation. Once the Fed raises rates, we'll know that balance has tipped.
- Hiring. We lost over half a million jobs in the last week. In a healthy recovery, business hires as many as hundreds of thousands a month. If things start improving in the economy, you'll start to see the hiring numbers rise rapidly.
- Revenue growth. As I have written, 81 percent of public companies reporting this quarter beat expectations by guiding down forecasts and by slashing jobs. If businesses start reporting double digit revenue growth, you'll know things are really improving.
- Underwater homeowners. We're likely to peak at 17.4 million underwater home owners by 2010, according to USA Today. It reports that some analysts think the peak figure could run as high as 25 million. And we'll know if housing is out of the woods if that number tumbles.
- Housing prices. Similarly, housing prices -- which have fallen nationally by 25 percent from their 2005 peak, according to USA Today -- will need to rebound both nationally and regionally. It's likely that such a rebound would come after jobs have returned.
- Stock prices. While the S&P 500 has risen nearly 60 percent from the March low, it is 22 percent below where it was 10 years ago. If stocks rise substantially from there, people might go from ignoring their 401 (k) statements to watching them with interest. If they start thinking of themselves as wealthier, then that wealth effect might get them to start spending.
- Capacity utilization. Factories are not working to their full capacity. Recently capacity utilization was running at about 70 percent -- well below the 82 percent long-term average. If factories get closer to working at full capacity, they'll start hiring to meet the growing demand. With productivity so high right now, some hiring might be in the near future.
-
Fed balance sheet. Since the financial collapse started, the Fed loaded up its balance sheet from $800 billion to $2.2 trillion. In so doing, it is storing all the financial toxic waste that Wall Street generated during the previous five or six years. Once the Fed starts selling off those "assets", we'll know the economy is getting stronger.
All this data is public, so if you care about keeping track of how we're doing economically, you might consider keeping a spreadsheet of these indicators and updating it as new information becomes available.
Peter Cohan is a management consultant, Babson professor and author of nine books, including Capital Rising (due in June 2010). Follow him on Twitter.
Why is Oprah going to cable? Hint: It's nothing to get teary about
Kisses from Hershey: Candymaker may court Cadbury with $17 billion bid
D-Day for Harry Reid: Can he wrangle 60 votes for Senate health reform bill?
Reader Comments (Page 1 of 8)
11-06-2009 @ 8:14AM
setec5354 said...
financial damage by the greed
,dirt and criminal mind isn't over and recovery will not happen anytime soon!
don't believe what i say, just watch how it keeps unfolding to reality.
if japan can't get out of their slump in the 90's, this one is worst!
Reply
11-06-2009 @ 10:25AM
All Fall Down said...
It should be obvious that we cannot have "free enterprise" without diligent enforcement of anti-trust laws as checks and balances to prevent monopoly control. It should be equally obvious that monopoly control of our banking system that extends credit to finance industry (ultimately dictating governmental policy) cannot co-exist in a democracy.
11-06-2009 @ 8:16AM
Terry said...
Really, eight “If” reasons the economy is getting better?
If a bull frog had wings……….
Reply
11-06-2009 @ 10:42AM
rustyandrick said...
.........and pigs could fly, been out of work since February and have applied all over. One interview in 8 months, sure glad the recession is over. This is NOT FANTASY ISLAND.
11-07-2009 @ 11:19PM
Tom said...
Rustyandrick, no offense but did you read this article? Not once did the author say the recession was over. He's suggesting 8 indicators to watch to see IF the recession is over. Big difference. Not that hard to understand. Pay attention.
Terry, do you notice that no one, not one of these comments offers any solutions. And from what I can tell in general I don't hear anyone coming up with any solutions than what is being done now. Oh yea, except, IMPEACH OBAMA! Yea, that'll solve the recession. But then what? I haven't heard anyone come up with anything, any alternative. I'm game for anything that sounds feasable. Come up with something.
11-06-2009 @ 8:19AM
Jim said...
Mr. Cohan, have you ever given any thought to getting a real job. I understand that gainful employment can be extremely rewarding. Why not try writing non-fiction.
Reply
11-06-2009 @ 11:48AM
Lance Manly said...
Jim,
Next time before commenting on an article, please try reading it. If you would have gotten past even the first two sentences, then you'd have realized that the author is not saying that he believes the recession is over. He is simply giving eight indicators which he believes will serve as good measuring blocks to allow us to determine if the economy is truly recovering.
Since, the author a). shares your opinion about the recession not being over, and b). is simply offering his advice to help the reader interpret the whirlwind of financial news which he/she reads everyday, I am unable to find the fiction which so obvious found in the in the article. Please point it out for me.
In the mean time, if reading an article this short poses too much of an intellectual challenge for you, then please keep your opinions to yourself, as you are the only one who will benefit from hearing them.
11-06-2009 @ 6:28PM
NOPE said...
1. trillions in borrowed money with interest owed. via us
2. dollar down 23 cents by IMF in 7 months.
3. unemployment @ 10.2% & rising
4. Banks still failing
5. stock back under 10,ooo
6. Inflation
7. oil prices rising
8. terroism back on the rise, while democrats attempt to nationalize large private interprises.
11-07-2009 @ 9:01PM
Stive said...
Jim, you are correct. Mr Cohan lives in a "Country of OZ'. Wishful thinking is o'k when unimployment rate is up to 10,2% !!!!
The prices of food is going up-up-up every week!
Obama can't handle ANYTHING!!!! Well, money printing and pushing 1,2 trillion ObamaScare, blabbing with help of telepromter- that is what he and his exstreme left Dems can do.
And by the way, the nathional debt is sky-high. Cina is owes us!
11-07-2009 @ 10:53PM
Fred said...
Lance.
Jim was partially right, most of the so called indicators are useless. Capacity Utilization, factories are not working to full capacity. What factories, where do these people live? We closed the factories and sent the JOBS to China. We tore them down and put up a Walmart. the jobs we created at the Walmart were part time low pay. The recession will start to end when we bring the jobs back from China.
11-06-2009 @ 8:20AM
carl said...
I guess all the rich no gooder,s got all they good get is the only reason they are saying it,s over but still have 30 million unemployed so it,s not over until we all get back to work I have been looking for a job hard for the last 4 months and can,t even find a low paying job
Reply
11-06-2009 @ 2:52PM
benetonf1 said...
Actually, Carl, the definition of a recession, or specifically the definition of a RECOVERY from a recession, does not hinge AT ALL on the simplistic "everybody" having a job scenario you pose. Try to disassociate the state of your personal employment from the economy at large. I'm sorry you're having trouble finding work, but "full employment" will not be the gauge of the recession's end. The fact is that the employment rate lags far behind the economy at large when recovering from an economic downturn.
Unless your point, as so many on here, was simply to complain and proclaim that "the evil rich" or "the Wall Street hyenas" or "Big Oil" or "Bush/Cheney/Halliburton" or "the Illuminati" or "the Jewish Cabal" or (insert conspiracy/who's out to 'get us' here) is the real problem, in which case trying to make sense with you is futile....
11-06-2009 @ 8:25AM
rj said...
The tax payers bailed out the banks. then A new buyer comes along, the banks give them A loan (taxpayers money) then we give them 8 thousand more in tax breaks. So how much say did A 100 thousand home cost us? 200 thousand? and it is probly worth 80 thousand. And who pays if it is foreclosed on again? Cash for clunkers cost the taxpayer big time, they are already repoing cars. People are still getting layed off from jobs.Trade deficit in the billons. Millons of illegals that they dont have A clue where they are or who they or where they are from. Currupt polticians. We have over A trillon dollar deficit.Forth generation welfare that never worked A day in there life .And you want the goverment to run health care?And they want us to belive that the recession in over?
Reply
11-06-2009 @ 10:41AM
James said...
rj, you keep saying that government spending is coming from your taxes. My taxes haven't gone up 1 penny. Even when the last adminstration was driving the National Debt skyward, we received a tax cut.
Some say our grandchildren will be paying off this National Debt. Not so. As the economy continues to recover, and consumer confidence returns, business's will produce more goods, which means higher employment...less money going out from the Feds and more money coming in. The debt will of shrunk by then.
I hope no one is thinking that Bush and Obama should never of had stimulus packages. Without these packages our economy would of sunk into a great depression already.
11-06-2009 @ 12:05PM
dee-dee said...
James !!! Are you the author of this article?
11-06-2009 @ 1:23PM
rj said...
James: The goverment does not have any money, and it does not make any money it has to take befor it gives. and as for your taxes not going up one cent ? Take A look at New York taxes and fees they are going up all over the place. and school taxes go up every year. Its people like you is the reason this country is in the mess that it is in.Good luck in not having your taxes go up one cent.
11-06-2009 @ 8:28AM
Terry said...
Crude inventories are rising, gas inventories are rising, so why does the price at the pump keep going up?
Every American need’s to call, write, fax and email their representative ASAP and ask these same questions! Where will the world be when the oil industry has all the money? The current world depression will not heal as long as fuel cost continues to escalate. The cost of fuel is the corner stone of any recovery because it affects every aspect of the world’s economy. It is so simple, just get off oil and start keeping our $25 Billion a month that we spend on foreign oil here at home to rebuild our economy. Our government has way too much oil money in it and Congress needs term limits. Where is the investigation into the oil and gas industry?
Reply
11-06-2009 @ 8:42AM
Mike said...
I find it nothing short of comical that the headline above this one is..."UNEMPLOYMENT JUMPS TO 10.2%" Ugh, this is becoming tiresome...
Reply
11-06-2009 @ 8:58AM
Reality Hurts said...
The end of the recession brings the end of rising unemployment, not the other way around.
11-06-2009 @ 9:06AM
Mike said...
"Reality Hurts"
Wrong. Not in an economy driven by 70% consumer.