Some definite signs that the economy may finally be coming around after its trek into the dismal depths of recession are beginning to show. Certainly, the symptoms are still hazy at best but everything’s got to start from somewhere and perhaps this is where the path to recovery starts.
The sprouting of “green shoots”, were felt across all industries, although the effects of these tentative signs of life have yet to trickle down to those who are most affected. Many remain to be not so optimistic of a turnaround in the foreseeable future, and they have their reasons for this. This once, however, we’ll let the data speak for themselves:
1. A Healthier-than-Expected Financial Industry.
The credit crisis and the ensuing economic downturn that followed mainly came from the financial industry and the banks were the first to suffer the consequences as well. With the release of the first quarter profits and the stress test results of the nation’s biggest banks, investor fears over the stability of these institutions were somewhat allayed.
Banks posted better-than-expected earnings for the first quarter, surpassing analysts’ forecasts by a long shot. At the same time, the report cards for the government’s stress tests were made public last week and showed passing marks for many of the big banks. Only 10 of the 19 banks tested were required to put in additional capital and even for these banks, the troubles they face are not as deep as some had feared.
2. Easing Job Loss Pace.
Unemployment jumped in April to 8.9% from 8.5% in March. While this is still the highest level that the job loss rate has risen to since September 1983, the good news is that the pace of job layoffs is slowing down. The monthly report shows that about 539,000 jobs were lost in April. And while that is still a lot, the number is way below the 681,000 jobs lost in February, and 699,000 in March.
New unemployment claims were still high, but again, down from the higher levels of the previous months. All in all, the job market still looks pretty bleak and few would argue with that. What we’re seeing however, is a definite improvement in this area. “The improvement [in jobs] was widespread across all the major industries that we look at and across all the sizes of payrolls that we look at,” said Joel Prakken, Chairman at MacroEconomic Advisors, a firm that creates and reviews payroll job reports.
3. A Recovering Stock Market.
The past few days may have seen a stall in the rally of Wall Street stocks, but on the whole, shares have been more upbeat lately. Since early March, the stock market has risen by 30%, sustaining an 8-week rally. Last Tuesday (May 12), stocks ended on a mixed note, but still way better than their earlier lows in the height of the recession. The highs and lows of the market that day were attributed primarily to worries that economic recovery, while imminent, may not come as quickly as hoped. Still, the momentary dip in share prices had some investors buying, hoping to cash in on what could be a sustained stock market rally.
4. A Stabilizing Housing Industry.
Economic analysts are also scouting for telltale signs of an improvement in the housing sector. The bursting of the housing bubble has jumpstarted this economic recession so the country’s recovery is also tied up with how the housing industry holds up in the next few months.
And indeed, reports for the first three months of the year indicate that the housing market is slowly stabilizing. While the total value of home sales continued to decline in March with banks selling off foreclosed properties at typically 20% less than others, the inventory of previously owned homes dropped in the same month. Moreover, the Fed’s efforts to reduce mortgage rates to record lows and the federal government’s incentives for home buyers, has helped to attract demand for new homes.
5. Increased Consumer Confidence.
After dropping by 4.1% in the second half of last year, consumer spending unexpectedly hiked up by 2.2% in the first quarter of this year. With the Consumer Confidence Index for April also showing a sudden increase of 12 points from 26 to 39, the trend in consumer spending might just keep on in the second quarter. Further, Wal-Mart Stores and other retail chains reported first quarter results that trumped analysts’ forecasts.
6. Falling Inventories.
Consumers’ slowly-returning interest in opening up their wallets again also bodes a significant impact on companies producing consumer goods. Although the gross domestic product continued to drop at a rate of 6.1% in the first three months of this year, still one can read some optimistic signs in the data. A good part of the decline actually came from companies’ falling inventories. With more goods moving out, companies will be in a better position to increase production as soon as the market demand comes back full throttle.