Recession over? Five signs Bernanke may be right
A number of positive trends support the Federal Reserve chief's statement that the recession has "very likely" ended.
Jim Young / Reuters
What’s the proof?
While there are still plenty who are skeptical that the downturn has ended, here are five positive trends that support a more optimistic view:
1. The stock market is acting more like a bull than a bear. The Standard & Poor’s 500 stock index is now up 58 percent from its March 9 low. “Over the last sixty years, the market has bottomed a median of 5 months before the recession ended,” says Sam Stovall, chief investment strategist at Standard & Poor’s in New York. “That would mean the recession came to an end at the end of August.”
2. New claims for unemployment peaked on March 28 when they hit 674,000. Now, they are down to 550,000. “Typically, after claims have peaked, the recovery is coming in four to eight weeks,” says economist Bob Brusca of Fact and Opinion Economics in New York.
New unemployment claims reflect people who are getting laid off. “As the economy gets stronger, you expect fewer people [to be] getting displaced and the claims levels to drop – which they have done with regularity through the years,” says Mr. Brusca. “It’s a very good statistical indicator of when the recession is at its worst and when it’s going to end.”
3. Many manufacturing sectors are finally turning up. On Wednesday, the Federal Reserve reported that industrial production rose 0.8 percent in August, the second consecutive monthly increase.
Automobile production has been particularly strong, rising 43 percent in July and 12 percent in August. Much of the increase was related to the so-called “Cash for Clunkers” program. The steel industry, which sells a lot of product to the auto industry, has seen production rise sharply from May to August.
“There has been a big inventory swing,” says Dan Meckstroth, chief economist at the Manufacturers Alliance/MAPI in Arlington, Va. “Usually, manufacturing doesn’t lead the business cycle but it was driven down so brutally, we’re getting a rebound effect,” he says.
4. Gasoline deliveries have risen for the past three months, after declining for over a year and a half. Although increased gasoline usage may be the result of low prices (compared with a year ago), it may also signal that more people are commuting or shopping. “It could be a sign we are moving out of the recession,” says John Felmy, an economist with the American Petroleum Institute (API) in Washington.
However, Mr. Felmy notes that goods often get shipped before they get sold. Besides, he says, demand for diesel has not picked up yet.
“I’m not ready to call an end to the recession until diesel demand is up,” he says.
5. Demand for freight transportation is rising, according to the Freight Transportation Services Index (TSI) put together by the US Department of Transportation.
The index, which measures the output of trucks, railroads, inland waterways, pipelines and air freight, rose 1.6 percent in July. This is the first increase since February and the largest since January 2008.
Over the past 25 years, an upturn in this index has been “coincident” with upturns in the economy, says Ken Notis, an economist at the Bureau of Transportation Statistics. “I would be wary about drawing too large a conclusion from one month,” says Mr. Notis, but he adds, “we also had a prior month of stability.”
His conclusion: improvement in the TSI is consistent with the stabilization of growth and the bottoming of Gross Domestic Product.
Click here to read about more about what Ben Bernanke said.
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