Long-heralded sag may be fading after just 7 months
Remebers the recession that was forecast continually for over a year before US economic activity really began to recede? Once the economy began to slip after last January, remeber the unfavorable comparisons with the 16-month 1973- 75 recession, invariably portrayed as the most severe since the Great Depression in the 1930s?
Well, after only seven months of relatively moderate weakness in employment, a moderate rise in the unemployment rate, moderate weakness in industrial production, and no great decline in deflated personal income, there are numerous signs that the economy may already have turned around and started on its way up again.
Traditionally, upward turnarounds in economic activity come about suddenly. There is no great amount of special data that begin to move upward many months before the economy as a whole.
In March 1975, for example, the month after which the economy began moving up once more, most of the economic reporting was on the severity of the weakness up to that point and on the prospects for further weakness.
This year, nonagricultural employment slowed its five-month decline in July, then rose in August.
The unemployment rate reached a high in May, improved a bit in June, returned to the May level in July, and improved a bit more in August. This development is most unusual. In the past, the unemployment rate has tended to worsen for a few months after the economy as a whole has started its recovery.
Deflated manufacturing adn trade sales appear to have bottomed out in June.
The Federal Reserve Board's index of industrial production rose by 0.5 percent in August. This measure of production by the nation's factories and mines had, over the previous half a year, slid about 8.5 percent.
The average-hours-worked figure rose substantially for August. This is further evidence that we may have the beginning of a real recovery.
While there are not many indicators of the economy that moved upward long before the economy as a whole, there are a few. Moreover, there are a number of measures that move up shortly before the overall economy. Such measures are labeled "leading indicators."
In addition to average hours worked, these indicators include common-stock prices, layoff rate, orders received by manufacturers of durable goods, liquid assets, the money supply, and several others.
Virtually all of the leading indicators have shown improvement in recent months.
Thus, the improvement that has followed in the economy as a whole is not the result of some special development that suddenly pushes economic activity upward and then disappears.
Part of the underpinning for the improvement in the economy is the fact that the auto industry stopped declining in May.
Most of the negative reports on the auto industry take the form of comparisons with a year ago. But such comparisons do not reveal the most recent trends. Between June and August a year ago, auto sales were moving strongly upward. Thus, comparisons of June, July, and August sales this year with those of a year ago may show large negative percentages and still be improving.
Between May and August this year, auto sales rose 27 percent. In the same period, output of the autos is estimated to have risen about 13 percent.
There is a pretty good chance that the so-called recession has ended and a recovery is under way. No one can be certain. And in the early stages of a recovery, economic activity is still at low levels.
At the very least, the receding in economic activity has been temporarily interrupted.