Conference Board Predicts Economic Recovery
The Conference Board has released its report on economic indicators. The report is signaling that recovery from the recession is about to begin or is in its beginning stages.
The Conference Board LEI for the U.S. increased sharply for the second consecutive month in May. In addition, the strengths among its components continued to exceed the weaknesses this month. Vendor performance, the interest rate spread, real money supply, stock prices, consumer expectations, and building permits contributed positively to the index, more than offsetting the negative contributions from weekly hours and initial unemployment claims. The index rose 1.2 percent (a 2.4 percent annual rate) between November 2008 and May 2009, the first time the index has increased over a six-month period since July 2007, and the strengths among the leading indicators have become balanced with the weaknesses during this period.
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LEADING INDICATORS. Seven of the ten indicators that make up The Conference Board LEI for the U.S. increased in May. The positive contributors — beginning with the largest positive contributor — were index of supplier deliveries (vendor performance), interest rate spread, stock prices, real money supply*, index of consumer expectations, building permits, and manufacturers’ new orders for nondefense capital goods*. The negative contributors — beginning with the largest negative contributor — were average weekly manufacturing hours, average weekly initial claims for unemployment insurance (inverted), and manufacturers’ new orders for consumer goods and materials*.
The Conference Board LEI for the U.S. now stands at 100.2 (2004=100). Based on revised data, this index increased 1.1 percent in April and decreased 0.3 percent in March. During the six-month span through May, the leading economic index increased 1.2 percent, with five out of ten components advancing (diffusion index, six-month span equals 50 percent).
Employment is a lagging indicator, so we probably won’t see a positive change in employment until the end of the year. This has been the longest and worst recession since the Great Depression. Thanks George W. Bush! Heckuva job!
Tags: Economy
Republicans must be very disappointed that there strategy of hoping everything fails isn’t working out for them.
The FUBAR Obama economy is recovering? Funny how the same people who never saw the disaster coming now predict its turn around.
You leave off a few things.
Output Gap has not diminished
Low interest and low fuel prices which won’t last
Housing is still decimated
Defaults are spreading to commercial and credit cards
Record Taxes are coming
Record Deficits are here
Personal savings remains high, consumer demand is down
Total lending and investment is down
Fed Chair says we will likely face a jobless recovery.
You cut and pasted a few segments from the LEI website and post a ‘recovery”
Your logic fits right into to those who say unemployment is getting better because we lost only 345,000 jobs rather than over 500,00?
Mike Protack
Here’s Mr. Shallow Bench with his Litany of Stuff He Doesn’t Understand.
Anyone else think that Mr. Shallow Bench is hoping that we won’t recover at all?
I REALLY hate commenting when anything I say could possibly be interpreted as agreeing with the great Republican brain trust Herr Pornstashe. But I have to say, the recovery talk is nonsense.
I also have to say that the scumbags who run our government (like Mike – oh… never mind, he’s never been elected to anything – I apologize) have run us into a ditch. Trying to blame 4th quarter GDP falling an annualized 6.5% (a nearly unmatched feat) on the guy who took office in the middle of the next quarter is as inane and uneducated an argument as I would expect from Mike. Blaming all of this on the Republicans is equally stupid.
Anyway, on to agreeing in part with Mikey…
Our economy contracted at an annualized rate of over 5.5% each of the last two quarters. If your definition of recovery is that the free fall is losing momentum then I suppose you might be able to say we are recovering – but things are still getting worse.
This will almost certainly be a jobless recovery. The savings rate is increasing, which helps the Fed keep rates low to try to spur growth (slow the implosion is probably a better way to put it) . But if people get comfortable and start spending or things deteriorate further and there is less to save then we will have less demand for Treasury notes, requiring higher yields and making the debt more costly to maintain and money harder for businesses to get (unless the Fed continues to keep buying them to keep yields low – but requires them to print money, making the whole situation worse the longer term you look). We have no room to maneuver. We are massively overextended.
I am starting to believe that the end game here is for the government to spur hyperinflation to make the deficits lower in real dollars. It will also wipe out people’s savings and choke off growth (but don’t worry – Mike will propose a tax cut, because there is no more prudent maneuver while going into a debt spiral than making a larger structural deficit).
We are being choked by our debt, complete mismanagement of the economy, and and lack of sound oversight of the financial system. And all you liberals: Obama has not done a single thing except damage control and pandering to every industry that has come knocking for a bailout…
Leading indicators are showing a recovery soon. That’s not something I’m making up. The recession has to end sometime after all. The speed and robustness of the recovery is where the questions are. I don’t know how fast it will be and how our economy will be structured when it’s done. All I’m hoping is that we don’t go back to the way it was before, all consumerism and paper-pushing.
Protack is just completely wrong by saying that the problems in the economy were not predicted. Bush’s economists didn’t see it, but plenty of people did: Nouriel Roubini, Paul Krugman and Joseph Stiglitz among them. BTW, one of McCain’s economic advisors was a guy who wrote a book called “Dow 36,000.” We’re still waiting for that.
The realistic position is that not only was the economy dropped into the short-term toilet by GWB, but it faces long-term problems, due to the demise of production, an over-inflated and under-regulated financial sector, and related problems. The road will remain rocky, no fault to Obama.
Kevin Phillips’ downbeat assessment in Bad Money, published last year, remains the state of play until there are long-term structural changes, including a national industrial policy. Obama wants to do the right thing [even though crackdown on finance has not yet occurred], but a timid Senate – including many lifestyle liberals who are in the thrall of Wall Street – resists change.
As Judis wrote today in TNR, we need [at least] a second stimulus bill.
The key drivers of the improvement in the LEI:
Vendor Performance – by definition a measure of the time it takes for a suppliers to fill orders – it is assumed that a lengthening of this period is inherently a demonstration that an expansion of demand is underway. I do not know enough about this metric to understand what other things going on in the economy (terms of payment, financing , reduced capacity), but it is not necessarily a home run.
The Interest Rate Spread – It is artificially high. To maintain it the Fed has been purchasing Treasury notes at auction because demand is not sufficient to hold rates in line with what the Fed wants to subsidize the banks (the interest margin is helping get them earnings needed to capitalize them). The interest rate spread is a component of this index because it indicates that businesses are willing to borrow to finance projects (read investment). We have artificially low rates and massively over leveraged firms trying to get the financing they need to not go bankrupt (read lifeline).
Real Money Supply – again thanks to the Fed ballooning its balance sheet by $2TLN in about 9 months. Can not last – unless we just want to throw in the towel, go 3rd world, and just go for hyperinflation
Stock Prices – made a huge run into May – and have hit a wall.
Consumer Expectations – This index has been able to predict ~15% of consumer spending changes in any direction. Very highly correlated – but not very accurate as far as magnitude.
Building Permits – Multi-family structures. I guess all those people leaving foreclosed homes have to live somewhere.
We have just entered the worst time of the year for layoffs, and considering the economic conditions it will likely be a bloodbath. Every
CEO who has weak earnings will be announcing the layoffs that will demonstrate their fiscal prudence (and justify their insane bonuses at the end of the year despite their firm’s losses) will be announcing job cuts along with or ahead of 2nd quarter earnings announcements. Quarter ends tomorrow, reporting will follow shortly after.
As for the validity of the indicators in general: The Index of Leading Economic Indicators hit their all time high in July 2007. They were right then too? Just sayin….