Signs of economic recovery are everywhere, but is the recession over? We believe so, and here’s why:
1. Leading economic indicators are positive. By August, the stock market, as measured by the S&P 500, has risen 50% from its March lows. In addition, The Conference Board’s Index of Leading Economic Indicators, designed to anticipate changes in the economy three to six months in advance, rose 0.6% in August, its fifth consecutive monthly gain.
2. Global economies are recovering. The Organisation for Economic Co-operation and Development’s (OECD) composite leading indicators for its 33 member contries recorded the largest increase since records began in 1962. (Located in Paris, the OECD spells “organization” as shown.)
3. The job market is improving. In august, non-farm payrolls fell by 216,000, the smallest decline in a year. This rate has been improving since January, when payrolls declined by 741,000. The unemployment rate rose to 9.7% in August but has historically been a lagging indicator, having improved at the end of or well after every recession in the postwar period.
4. The Federal Reserve’s efforts to stabilize the financial system worked. Its moves to slash interest rates and pump trillions into the financial system restored the money and corporate credit markets. Corporate America has taken advantage of attractive rates, issuing more then $800 billion in new bonds during the first seven months of 2009.
5. Bank lending is increasing. Bank’s profitability and capitalization have improved, and they have started lending again. According to the Fed’s recent periodic survey of banks, the percentage of banks tightening their lending standards has dropped across all types of loans. While standards are expected to remain tight compared to historical standards, the improvement that has occurred should be enough to support economic recovery.
6. Expectations for 2010 economic growth continue to improve. Numerous surveys and forecasts indicate a more promising outlook, including a recent Wall Street Journal survey in which 80% of economists said they believed the recession either had already ended or would end by September.
7. The housing bust appears to have bottomed out. Sales of existing U.S. homes jumped 7.2% in July. This equates to an annual rate of 5.24 million homes, the highest level in almost two years.
8. Manufacturing in on the rebound. The Fed said industrial production rose 0.8% in August compared to July. This was the largest back-to-back gain since 2005 and followed nice consecutive monthly declines. European industrial orders increased 2.6% in July compared to June, the second consecutive increase, according to the European Union’s statistics office.
Article from Edward Jones statement.