Recession and Recovery July 2009

July 3, 2009

by Mike Simonsen

1 comment

If you follow me on Twitter you might have noticed this economic data theme. There is some good evidence of a recovery from the current economic gloom.

I follow the weekly economic indicator data from ECRI very closely. It comes out each Friday and has reputation of being the most consistently reliable predictor for the turning points in the economy. I use it because it’s the most current data and it cuts through the all the deafening noise out there (“oh no! The employment report was worse than ‘expected’! Sell! Sell! Sell!”)

Caption

Leading, Coincident, and Lagging economic data from ECRI. Shaded areas represent growth rate cycle downturns. Horizontal dashes near the bottom mark off U.S. business cycle recessions.

So what’s it saying? According to the data, the bottom of the trough was March 2009 and we are firmly on our way to economic recovery. (See the spike up in the green line in the chart on the right.) That implies investment starts to increase, jobs recover, and growth resumes. The green line generally leads the economy by 3 – 6 months. Last December it was as low as the 40 years of data has ever been, and now it’s back positive. That’s the good news.

This data, unfortunately, does not measure structural flaws in the economy like the looming wave of Alt-A mortgage resets that have yet to hit like the now 2-year-old sub-prime tsunami, or secular shifts like a new found savings frugality in this country.

By the way, the data shows, this week, the first inkling of an uptick in inflation – the inevitable result of the massive money being pumped all over the world.(See the Future Inflation Guage)

And when inflation hits, the cheap money spigot will have to be shut off. Interest rates will rise. The housing market, among other things, is gonna get hit hard. Again.

So while the data looks good for Q3 and Q4 2009, these issues are looming for 2010 ad beyond. Count me among the not-so-sanguine about the intermediate-term prospects. I’m currently in the double-dip camp.

Conclusions: for homeowners it’ll still a good time to refi for the next few months- if you happen to have your financial house already in order. For real estate professionals, while housing prices may resume their drop, the number of transactions (largely dictated by rates of foreclosure) can still rise.

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