Green Shoots

April 30, 2009

Every day seemingly brings at least one pleasant data surprise and often more than one.  Portents of an end to the deepest and longest post-WW2 recession are not limited to one or two countries, but rather spread around the world’s regions and range of rich and poorer economies.

New U.S. claims for unemployment insurance averaged 637.25K over the last four reported weeks.  That was not only less than the 658K mean in the previous four weeks to March 28th but also below the 643K mean in the four weeks to February 28th.  Jobless claims are an important leading indicator of the business cycle.  This was the first instance when a four-week period was not as severe as either of the two previous four-week periods.  The mid-western PMI scores reported today were much better than assumed.

Between February and April, Euroland’s composite PMI index improved 4.3 points to 40.5, with gains of 3.2 points in manufacturing and 3.9 points in services.  Business confidence in France and Germany produced better-than-expected readings.

Japan’s PMI factory index recovered 7.6 points to 41.4 in April.  Japanese industrial production advanced 1.6% in March, and surveyed firms anticipate the level of production in April-May being 5.7% greater than the first-quarter mean.

British households haven’t hunkered down as much as feared.  consumer confidence hit a one-year high.  Real retail sales rose unexpectedly in March and 1Q, and the CBI survey of retailers produced a shocking jump to plus 3 in April from minus 44 in March.

South Korean industrial production has risen in three straight months including a much bigger 4.8% in March than had been forecast.  Chinese industrial output rebounded from a 3.8% on-year rise in February to an 8.3% increase in the year to March.

Canadian real GDP eased only 0.1% in February, the smallest drop since October despite another tumble in construction, which imploded 8.3% over the latest four months.  Auto production, +1.9%, and wholesale turnover, down only 0.2%, performed considerably better than their recent trends.  Australian business confidence picked up last quarter.

Global stock markets haven’t caved yet, having rallied sharply for the past eight weeks.  I view equities as the proverbial canary in the cave.  If the global economic downturn reintensifies, equities are likely to telegraph the earliest warning.  Positive economic developments are the considerable lapse of time since the recession began, progress in the adjustment of inventories, employees and investment, and substantial policy stimulus to boost growth and repair the banking system.  But an awful lot can still go wrong.  No business cycle proceeds in an entirely smooth way from peak through downturn to a trough and then recovery and expansion phases.  The U.S. recession of 1981-2, for example, produced a sequence of quarterly growth (saar) beginning in 2Q81 of -3.1%, +4.9%, -4.9%, -6.4%, +2.2%, -1.5%, +0.4%, and +5.0%.  The 2.2% annualized rise of GDP in 2Q82 after back-to-back sharp drops in 4Q81 and 1Q82 was not the emergence from recession and was followed by more contraction in the second half of 1982 before decent growth finally commenced in 1983.  Many economies are likely to experience business cycles shared more like a “U” or an “L” than a “V” this time.  Because the trough this time will be associated with very high levels of unemployment, many years may feel like a continuing recession even after GDP starts to expand.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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