When all you read is gloom, turn here for a much different perspective.

Saturday, May 9, 2009

Green Shoots Now Growing Leaves

The green shoots of the US economic recovery may not have yet started the budding phase, but at this point those shoots are no doubt growing leaves.

And even though almost all commentary concerned big bank stress tests, this past week saw just about every economic report turn up more good news...

First thing Monday morning the construction report showed that in March spending jumped up. Construction outlays posted a 0.3 percent gain. The rise was much better than the market forecast for a 1.0 percent fall. The uptick was led by private nonresidential spend which jumped 2.7 percent after just a slight increase in February. It was the first overall construction spend increase in six months.

Right on the heels of the construction report came pending home sales good news. The pending sales index rose 3.2 percent in March. The report further pointed to likely improvement in existing home sales for both April and May.

Retail good news continued the weekly streak. ICSC-Goldman said same-store chain store sales rose by 0.7 percent in the May 2 week-end reading. The Redbook retail report followed with estimates that the full month of April sales, rose 1.5 percent compared to March. On the heels of those readings, Redbook released a target of a 0.5 percent month-to-month rise for May.

Tuesday also saw terrific news from the Institute for Supply Management. The ISM's non-manufacturing index -- like the previous Friday manufacturing report -- showed decisively that rates of economic contraction are slowing. New orders were especially encouraging, bouncing up more than 8 points. Purhaps most surprising to many was the employment report which also showed improvement -- up nearly 5 points.

The Mortgage Bankers Association released the first good news of Wednesday. Their purchase index rose 5.0 percent. Additionally their refinancing index continued to be extremely strong rising another 1.2 percent.

The Challenger job cut report also followed with good news. Their layoff count showed a month-to-month improvement, at 132,590 in April vs. 150,411 in March. Most encouraging was that hiring intentions, improved significantly in April bouncing to 27,062 from March's 19,309 reading.

Shortly after the Challenger report more cheery news followed on employment. The ADP employment report sparked increased talk that the worst of the recession is now behind us. The last month to month ADP report had estimated private payrolls falling by 742,000. Wednesdays report... only 491,000.

Thursday punctuated our string of "Good News Thursdays." The retail chain store sales report showed consumers continuing to buy -- and not just at discounters. In fact on Thursday, JCPennies raised its quarterly profit guidance for the third time in less than a month. Many other retailers also guided higher.

The Monster employment index was also released on Thursday. It pointed to continuing improvement in demand for labor. The Monster employment index rose 2 points in April to 120. The report said that job postings showed particular strength in the leisure & hospitality sector and also surprisingly pointed to stabilizing employment in the finance segment.

Even more encouraging was the governments initial unemployment claims report. Initial claims fell 34,000 in the May 2 week to 601,000 down more sharply than even the most optimistic forecaster had predicted. The drop dragged down the four-week average by 14,750 to 623,500. You'll remember how acturate this falling number is in predicting the end of recessions.

Further encouraging news followed with RBC's report on consumer attitudes and spending. May RBC Index bounced to a reading of 43 from 38.3 in April and from its low in February. The index has now recorded its first three-month rally since the last quarter of 2005. The RBC index report follows a string of consumer confidence readings now showing consumer confidence mending rapidly.

And of course on Friday the published results of the big bank stress tests fueled the lion-share of economic commentary. But not surprisingly, on renewed confidence in our largest financial institutions, and as a result of all the leaves now growing on the economic green shoots, the stock market romped higher.


  1. How are the banks going to deal with all of those bad commercial real estate loans that are coming due in the next several months? There seem to be lots of strip malls with empty stores and empty office buildings as well.

  2. @Anonymous,

    There is a lot of FUD (fear uncertainty and doubt) being spread about "bad commercial real estate loans." For those folks I asked the question. "Do you really understand the difference in sizes between residential real estate and commercial? Which do you believe is larger?" Residential... several of the top 19 banks have a greater degree of commercial exposure, but the reality is that as the residential market has begun to originate new prime mortgages on the banks books, those banks are "earning their way out" of any bad loans that continue on their books. And the buffers now put in place by the stress tests will assist in preventing any negative outcomes put forth by those spreading the FUD. For the most part, this "crisis" is behind us.


  3. Are you concerned that high inflation (due to stimulus) and increases in taxes on ordinary income and capital gains in 2010 will push us back into recession as we come out of this one?

  4. @Anonymous,

    More so than at any other a time in history, this Fed is tuned into the challenges and actions necessary to for healthy fiscal policy. At this point in time I don't see inflation or increases in taxes on ordinary income as major concerns. Anyone calling for either of those to happen are basing their points on pure speculation.



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