Yeah, the stock market is up but the Great Depression has several suckers’ rallies before really going up for good. OTOH today’s increased jobless numbers mean little in the other direction as that is the archetypal 'lagging indicator" not coming back down until a recovery is solidly afoot.
The Economist is sounding some cautiously optimistic notes, FWIW.
Another way to look at it is Nate Sliver’s CEI metric. His take is that the ratio of the index of the consumer discretionary index (XLY) to the consumer staples index (XLP) - which he then calls the Cyclic Expectations Index (CEI) “is a better gauge than broader stock indices for what the market really thinks about the economic variables that are important to most of us – like GDP growth and unemployment.” How he had put it in his introduction to the concept was that “when the CEI dips below 100, this indicates recessionary expectations.” That indicator has moved from 84 a month ago to about 100 today (and Nate had introduced it and its rise off of its bottom as evidence that the market was already responding positively to Obama’s plans even while the S&P was still dropping). If Nate’s statistical wonkdom holds up as well for economics as it has for sports and voting results then I’d hold that crossing the 100 mark as being a watershed moment.
And probably the single best indicator that we’ve hit bottom and are really climbing back up is that economists are now fretting about the risks of a too fast recovery!
What metrics can actually tell us that we are in a recovery other than looking in the rear view mirror months after the fact?
I dropped by Unemployment to fax something and the line was shorter than usual for a Friday. Then I noticed that they had broken it into two lines, so it wasn’t really shorter than it would’ve been two months ago. OTOH, the last time I was there, in February, it was VERY long.
Nearly 700,000 lost jobs last month. No where near bottom. Manufacturing dropping. Wages going down. Foreclosures growing. bankruptcies growing. i see no hope. The market tells us nothing.
bear markets go on for far longer than qanyone thinks is justified.
sam stone is correct in that only after the bottom will it be obvious. anyone relying on esoteric iindicators probably is just trying to generate commissions. evil economist has a lot of standard measures - none of which show the light at the end of the tunnel. spent last weekend with a bunch of big swinging dicks in hong kong and they joke that the light is broken.
this isn’t a normal recession. consumerism just isn’t going to be at the same debt fueled level.
the closest example is japan in the two decades since their consumer fueled madness burst. it’s been 20 years since their peak and they haven’t recovered. the nikkei 225 has had many sucker ralllies since then but is tading at only 20 percent of the peak. it appears that the west is going to avoid the worst of warehousing the radioactive debt.
this is a great market for those with an appetite for risk and volatility but probably crap for buy and hold. chances are you can gat great stocks at the same or cheaper prices over the next 2 years.
Sam of course is correct in that there is no way to know for sure until looking back from the distant future, and of course Squink is correct that a complete collapse of either Chrysler or GM would set things back a long way.
But the question is: what would you need to see to conclude that it is bouncing back, short of looking back from “the distant future”?
Unemployment figures are worthless for this task as they lag everything else.
Clearly a market rally, even for a month, even going up more than 25%, isn’t enough; it can start to go back down tomorrow.
Office vacancy rates? Also will lag. The recovery has to be well afoot before businesses will commit to more space again, more so even than when they feel confident enough to rehire.
Construction spending? Other than as a direct result of stimulus monies that is also going to lag. You first have an excess inventory to off-load.
House prices? Relatively will lag to house sales. At bottom first people have to start buying … at any price. Then demand can increase enough that it matches the huge supply. Then as confidence builds pent up demand is released and prices begin to rise some, especially if credit start to ease up some at the same time. I see price rises as likely occurring very late in this recovery and very slowly, but what do I know?
Purchase of big ticket items, like cars and overall durable goods? That seems to be a key. Overall consumer mood seems important as an early indicator.
No, I am not sure that it won’t get worse before it gets better, but I am curious how we can know when it is … other than from the vantage of the distant future.
FWIW The Conference Board tracks what they consider to be the leading indicators in an index which they release in the middle of each month. The last numbers were for February and were as follows:
So as of February there was little reason to believe that bottom has been hit. OTOH we know that some of the March components of that index have moved positively - new orders for consumer and nondefense capital goods are up, stock prices are up, and consumer expectations are marginally increasing. On the other other hand (?call in the prehensile tail?) unemployment is up and weekly manufacturing hours are flat to marginally lower. And I do not even have the foggiest how to find the others.
I think that I’ll believe it when weekly manufacturing hours are up for a few weeks running (probably starting with the overtime category) and orders stay moving marginally upward along with continued increasing house and other big ticket sales at any price.
To answer the question you have to understand what was asked. We are in financial decline because the banking system has collapsed. It did so mostly because of poorly regulated insurance against mortgages. The housing bubble accelerated the process.
Ultimatelly the question is: are banks solvent? The answer is no. Because the answer is no we don’t have the liquidity to borrow money for manufacturing, purchase those goods, or buy new houses.
It is impossible (and silly) to pin the economy on one indicator but with that caveat I’ve noticed that the price of oil has been rising slowly and steadily since mid-February. There are a legion of possible reasons for this (e.g. OPEC has been lowering production) but I take that as a positive sign.
So then Magiver, you’d judge the bottom having been hit when/if you see evidence that the current plan has assured banks of remaining solvent? What would you accept as evidence of that having occurred? If the drop in lending rates has leveled off would that be evidence in your eyes? Increasing? The last numbers I can find are January’s:
Of note the Treasury span a January drop in commercial and industrial lending rates as not due to any unwillingness of the banks to lend:
FWIW.
It will be interesting to find out if lending volume continued to increase during February and especially March (to judge how the banks viewed the Geithner plan in deed) and if the commercial sector picked up too or not, but it seems that we’ll have to wait a while for those numbers.
Or is lending volume not an adequate surrogate for solvency for you? If not what would you propose to use as a metric?
Hey, if the economy has turned around, maybe we can still cancel the stimulus. I don’t think a dollar of that has been spent yet. Would you agree, DSeid?
When? This is new. This time the financial experts did not just gamble with their own wealth but risked the banks themselves. They did it by fundamentally changing the banking and investment system through legislation ,bribery and coercion.The world economy was risked and the danger came from within.
The people have been shaken. They see jobs going, foreclosures surrounding them and wages and hours cut. If we need them to spend and invest, it will be interesting to see what will convince them to do it. The administration ,I think,underestimates the importance of appearances. To allow the financial pros to run the recovery they caused and give bonuses to themselves is not only wrong, but makes the people think the thieves still have a green light. What will change if they are still inside making the decisions. It looks like another cover up. We are still out of step with the world on regulation.
Lending volume is an indication that a solvent bank is lending money. It is not an indication that all banks are solvent. There is a lack of transparency that makes it difficult to know what is going on. I keep hearing versions of the following observationand I find it disturbing: The Financial Accounting Standards Board, under heavy pressure from politicians and financial firms, will let companies use “significant” judgment in valuing some assets, notably mortgage securities, rather than relying on current illiquid market prices.
After watching Bill Moyer’s interview of William Black it doesn’t appear Geitner is the person to deal with this given his direct role in causing it. It’s interesting program to watch and it’s not favorable to Republicans so don’t dismiss it as partisan.
There is still a great deal of bad debt on the books and Black points out that Geitner is publicly saying that it’s going to take $2 trillion dollars to deal with this problem. But they’re allowing all the banks to report that they’re not only solvent, but fully capitalized. Both statements can’t be true. This goes along with the cite I listed above. There is a lack of transparency.
I just hope the stock market climbs high into the 8000 range to cover the next big drop.
Sam, if you hear me arguing that that the recovery is over and that nothing more needs to be done, then you are mishearing. I am asking some questions, including whether or not it has bottomed out, but more so what, short of the look back from a distant POV, will tell us that it has. Your answer is clear: only that distant vantage will do. For you I ask: how distant of a vantage will tell you that it is over and how at that point will you know?
Magiver, okay, banks lending is not a metric of significance to you. I ask again then, what metric would you accept as a metric that banks are going to remain solvent and that therefore the recession has bottomed out? The way you state it “banks are insolvent” is a statement of faith and not subject to falsifiability; surely you do not intend that. What do you submit as a meaningful metric? Or is it your position that it is impossible to know when we are bottoming out and that only the long distance look back will do as well? Any comments regarding politics and speculations of future events are not the subject of the op. (Although of course I do not own the thread and exert no control, I do reserve the right to request that response address the op anyway.)
