Thursday, May 21, 2009

Does the 58-Point Increase in the Philly Fed Forecast Index Signal the End of Recession?

The Philadelphia Fed reports today that the Six-Month Indicators Show Continued Improvement:

Broad indicators of future activity showed improvement again this month. The future general activity index remained positive for the fifth consecutive month and increased 11 points, from 36.2 in April to 47.5. The index has now increased 33 points in the past two months (see chart above, click to enlarge). The indexes for future new orders and shipments also improved, increasing 13 and 14 points, respectively.

For the first time in eight months, the percentage of firms expecting employment to increase over the next six months exceeded the percentage expecting declines (26 percent versus 16 percent). The future employment index jumped 22 points, to its highest reading since last September. The six-month capital expenditure index showed a modest four-point improvement, increasing for the second consecutive month; at -0.2 the index is 22 points higher than its record low in March.

MP: Notice in the chart above that in 2001 a 60-point increase in the forecast index signalled the end of the 2001 recession. Hopefully the recent 58-point increase in the future activity index since December 2008 is signalling the end of the current recession.

According to the Philadelphia Fed, "Most broad indicators for future business conditions improved markedly again this month, suggesting that an increasing number of the region's manufacturing executives expect a recovery in business activity before the end of the year."


At 5/21/2009 11:38 AM, Anonymous Anonymous said...

It'll be interesting to see how all the bears/pessimists/doom-and-gloomers spin this piece of good news as a "wilted weed."

In fact, based on all the data I've been seeing, it's going to be interesting to see how they'll be able to spin ALL of the positive economic news that's going to be coming down the pipleline in the coming weeks and months.

So get your excuses ready, naysayers! It won't change what's already been set in motion, but venting might make you feel better...

At 5/21/2009 1:17 PM, Anonymous Anonymous said...

This is far from over...3 months ago, Obama predicted an unemployment peak of 8.1% for 2009, then a fall to 7.9% in 2010. At that same time, the CBO predicted it would peak at 9% in 2010. Today the CBO updated that peak to 10.5%.

At 5/21/2009 2:11 PM, Blogger Realist Theorist said...

The "naysayers" I follow aren't predicting a huge downturn around the corner. They say "nay" to a rebound to business as usual. Many "bears" do not even think stocks will only go down from here, or that we'll see worse lows.

The most common bear-thesis would better be described as follows:
* we came off a high, and plummeted to a low;
* that may be the low, or we might hit a lower low, or something between that and the last high;
* at some point, we'll find a range of stability between out last high and the low (whatever that turns out to be);
* then, we'll bounce around that in some years of stagflation

What comes after that depends on what political choices Americans make.

Most bull-theses appear to be based on good showings of second-differentials. However, those could simply indicate that the fall is over and a plateau is being reached. (Not a plateau really, but the wide bottom.)

At 5/21/2009 2:13 PM, Blogger Robert Miller said...

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At 5/21/2009 7:59 PM, Blogger 1 said...

"In fact, based on all the data I've been seeing, it's going to be interesting to see how they'll be able to spin ALL of the positive economic news that's going to be coming down the pipleline in the coming weeks and months'...

You mean like the following?

The Obama Budget: Spending, Taxes, and Doubling the National DebtWho Pays for Cap and Trade?
Hint: They were promised a tax cut during the Obama campaign.

At 5/21/2009 8:43 PM, Blogger Jack Miller said...

A consumer-business capital spending boom is just about to start. Between now and Thanksgiving, scores of "must have" products will come to market. These gadgets will include mobile digital TV, mobile digital news readers and of course smart phones of all sorts. One huge area of growth will be in photograph and video instant sending. Radio Shack and other retailers of gadgets are hiring now. "Creative destruction" will continue to take some jobs away (a lot of US postal service workers will take early retirement over the next couple of years) but there will be a substantial net increase in new jobs.

At 5/21/2009 11:51 PM, Blogger Robert Miller said...

This comment has been removed by the author.

At 5/22/2009 12:10 AM, Blogger Jack Miller said...

Sorry, but "normal" is for banks to make their V bottom turn well before recessions are over and for consumer cyclical stocks to head up shortly before recessions are over. Look at the KWB index. The V bottom has been made. The bank stocks rise as soon as they stop having to add big reserves and the consumer stocks rise in anticipation of recovery. The Apple "Touch Screen", Amazon Kindle and other devices I spoke about are durable goods. The infrastructure in in place, bunches of machines can be added that will do things that have never been done before. All sorts of indicators say that the worst of this one is over. The TED spread, has fallen from the stratosphere, the emerging growth countries are rebounding and countries all around the world are making smart investments. The USA is wasting plenty on pork but, as Milton taught us, the multiplier effect still works on poorly spent dollars. Homes are cheaper relative to income than ever before. By the end of this year, there will be a mad rush to get in on the $8,000 home buying tax credit before it expires. The NASDAQ is up 20% so far. It will continue to climb the wall of worry and anticipate the absorption of housing inventories.

At 5/22/2009 5:42 AM, Blogger Realist Theorist said...

I think the notion that this recession is a "normal" one is what the bears would question. The thesis is that all recessions are not made equal (it is not merely a questions of scale, but also of locus of impact).

At 5/22/2009 8:22 AM, Blogger Jack Miller said...

All recessions are different and all are the same. Real estate induced recessions alternate with manufacturing recessions but obviously real estate recessions tend to be bad enough to cause unemployment across broad segments. On the other hand, the manufacturing recession of 1981-82 was so tough that it certainly seemed like a real estate recession to home builders who faced strong demand until 30 year mortgage rates went to 15%. The real estate recession of 73-74 was so tough that the industrial unemployment rate soared something like 10,000 banks and savings and loans went bust. If you remember, in the recession of 1982, there was talk of a bailout for GM and F and Chrysler was ultimately bailed out. So yes, recessions are different, but yes, there is a "normal" pattern, and yes there is going to be a major spending boom because much of the Internet 1.0 equipment is obsolete. The Richmond Times-Dispatch just became the 29th domestic newspaper available on Kindle and the number of newsletters switching to electronic delivery has recently gone from a small stream to a flood. Many of these newsletters are taking a path that will later be taken by the newspapers, which is read electronically or not at all. When a paper announces, that as of a certain date, it will no longer be delivered, except via Kindle or a PlasticLogic reader, many an old man who said he would never buy a computer will purchase an e-reader. Many a person who has a desk top gathering dust will sit in their easy chair and read the news and read and respond to their mail without going buy stamps or even going to the driveway. These old men are like the ones who kept their horses and buggies until after the livery stable closed. The paradigm shift from horse transportation to auto transportation began in earnest in 1908 when Henry Ford began using standardized parts. Car 1.0 accelerated in 1914 when he started using the assembly line. Car 2.0 required a new kid in town, GM to talk the "other half" into buying. The roaring 20's would not have happened if so many car related jobs had not been created. AOL is analogous to Ford. Certainly different but following a similar path.

At 5/22/2009 9:43 AM, Blogger Robert Miller said...

This comment has been removed by the author.

At 5/22/2009 12:05 PM, Blogger Jack Miller said...

One of the points you miss about the gadgets is all the capital expenditures that are required to make them work. Verizon, AT&T, Cisco, Google and many others are rapidly deploying assets. The estimates of traffic growth are off the charts and traffic needs interstate highways and sophisticated inter-changes. The V bottom in bank stocks is always a jagged and far from perfect V. The shape of the recession bottom is different for different industries and the timing of each effects the shape of the "composite recession bottom". In the great majority of communities across the country, the unsold inventory of new homes is gone or virtually gone. As I said before, by year end, there will be a rush of new buyers trying to take advantage of the $8,000 tax credit before it expires. This recession is already long partly because the NBER dated it before a 3% growth quarter. But, yes,it has been nasty relative to the 2001 manufacturing recession. So what, it is still close to being over.

At 5/22/2009 1:17 PM, Blogger Realist Theorist said...

"the unsold inventory of new homes is gone or virtually gone"

Sure, but that's because nobody is building new homes any more. Still, so few people are buying new homes that new home inventory is actually sky-high in terms of the months-of-supply using the current sales pattern. (ref:Calculated Risk)

Therefore, the notion that new home inventory has come down is not good news, only your assumption that new home sales will resume a fast pace, because of the $8,000 credit is, if it turns out to be true.

At 5/22/2009 9:36 PM, Blogger Jack Miller said...

My assumption that home sales will pick back up trumps your assumption that they won't, because of the reversion to the mean principle. Throw the $8,000 credit out the window and homes are still the most affordable they have been.


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