Economic Notes: Hoof Prints
4/20/2010
By Patrick O'Keefe, Director of Economic Research, J.H. Cohn
The Dating Committee of the National Bureau of Economic Research recently announced that it cannot yet declare the recession’s end. This prompts two comments.
First, the mission of the Dating Committee is not, as some believe, to arrange social engagements for economists with limited social skills.
Instead, the committee’s role is more prosaic: to define the peaks and troughs of the business cycle; that is, assign dates to the beginning and end of recessions.
Second, the committee’s announcement that it was not prepared to declare an end to the recession brings to mind a press conference held by Congressman William Scott to deny allegations that he was the “dumbest congressman.”
What was to be gained?
The committee delays from an abundance of caution: not all of the relevant indicators have turned definitively positive (e.g., employment) and those that have may be revised.
That is correct, but when all you can see are hoof prints on the horizon, it is time to declare the horse out of the barn. The recession ended months ago. (See: "Recession Ended in November.")
Indeed, in the next month or two, the economy will shift from recovery to expansion, from regaining lost ground to surpassing its pre-recession peak.
Indications that a new cycle has begun are evident in the most recent data.
Retail sales rose 1.8% in March, the third consecutive monthly increase. An over-the-month pick up in auto sales was supplemented by gains in all other components but two (electronics/appliances and gasoline).
Retail sales have risen in nine of the last 12 months. Compared to March 2009, spending was up 8.2%; even excluding then-depressed car sales, the year-on-year gain was still substantial (6.8%).
Yet, even as retail spending is on the rise, consumer credit continues to shrink, especially revolving account (e.g., credit card) balances. This does not suggest shrinking activity but rather reflects a combination of inter alia (1) restraints on the availability and costs of credit and (2) a reduced appetite for debt on the part of households. Consumers are spending more, but financing less.
Evidence of the recovery emerged first in the manufacturing sector, which has increased output for nine consecutive months. And the pace of improvement appears to be quickening.
To be certain, the recovery is far from robust, as is evident in the Chicago Federal Reserve Bank’s National Activity Index, a composite of 85 economic indicators. But it will gain momentum over the next couple of quarters.
Those who still fear a double-dip should close the barn door. That horse is long gone.
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