The recession is over!

Predicting economic downturns and upswings is more an art form than an exact science. In my view, there are two important factors when making economic predictions: the facts (traceable economic data) and emotions (how we feel often dictates our future economic behavior).

Readers of my column seem to like it when I take a positive view of the world. So today I’m going on the offense by declaring that the recession is over! (I expect the National Bureau of Economic Research to officially say that the recession will be over this summer…and since it usually lags about 18 months behind, we’ll have some time to find out if I was right).

I’m not under the illusion that the job market won’t weaken further. There also will be more foreclosures and other economic difficulties. I am, however, basing my cautious optimism on economic data, street smarts, gut feeling and the all-important state of mind of the consumer and the business world.

Let’s dive in.

First, one economic indicator you don’t often read about is the price of copper. Copper is used in almost everything that conducts electricity, which means it’s a huge part of global industry. The prices are therefore widely regarded as a good predictor of economic activity. While the price of copper is down 50 percent from its high point, it is also up 100 percent from its low point. That indicates the prices have bottomed out. Another interesting indicator is the Baltic Exchange Dry Index, which measures international shipping prices. Those prices are a far cry from their high point, but they show a clear upswing, which goes along with the increase in inbound and outbound container traffic.

The next indicator is unemployment. It will take a long time to recover all the jobs that have been lost, but the number of unemployment claims is slowing. Applications for jobless benefits dropped by 34,000 to 601,000 in the week ending May 2, the least since late January, according to the Labor Department. Additionally, productivity rose at a 0.8 percent annual rate from January through March. That’s up from a 0.6 percent decline in the fourth quarter.

Another indicator of recovery is consumer spending. It’s not in high gear, but it was in positive territory during the first quarter. That trend is expected to continue. Even the housing market is staging a timid recovery. Additionally, Treasury bond yields are pointing upward, which means interest rates have bottomed out and now is a good time to refinance or buy real estate.

Finally, the Consumer Confidence Index shot up in April. What I find more interesting is that the Expectations Index rose from 30.2 in March to 49.5 in April. In other words, we only feel a little better about the present, but we feel considerably better about the future. That’s particularly surprising given that we are in the midst of a Detroit meltdown (it’s been hard on all of us to see big American icons struggle … I hope Fiat knows something Mercedes did not). So much for the data. Now let’s discuss the emotional side of things and how our feelings impact the economy. Other than the Expectations Index and the Consumer Confidence Index, there aren’t many hard and fast numbers to measure our emotional state.

Almost everything seemed to be in free-fall in the first quarter of this year. I heard the expression “walking over a cliff” several times. As a result, we’ve been holding our collective breath. But I believe we have finally exhaled and are starting to breathe normally again. While we aren’t jumping for joy yet, there seems to be a general consensus that we have averted a depression and that the fiscal and monetary stimulus is working, thereby setting the stage for a sustainable recovery. There is debate whether it is going to be a “Rapid V” recovery or a slow rebuilding process. What kind of recovery we will see is not that important. What matters is whether we collectively feel we have hit bottom and are on the upswing. Unlike a roller-coaster ride, where going up is the painful experience and coming down makes us scream for joy, it is just the opposite in real life.

Over the next several months we will hear about other industries and parts of our financial system that will need a bailout or some other form of help. But it feels like most of the problems have been identified and no other big shoes will drop. That fact alone is reassuring and explains, in part, the more optimistic outlook. As the saying goes: Recognizing a problem is the first step to finding a solution.

My gut instinct tells me we are all tired of feeling down and will take any good news we can get and amplify it. The collective willingness to get on with life will be a big factor in rebuilding a strong economy.

Let’s hope we also will take this opportunity to build a foundation for a stronger and better country overall.

As always, we want your feedback, your opinions and your stories of how YOU will be rebuilding your own personal economic reality.

E-mail me at marc@hiltonheadmonthly.com
Onwards!