We may be on the cusp of recovery

Last year, I was among the first to say the economic sky was falling, and I took some grief for it at the time when others said the fundamentals of the economy were fine.

Now, I’m going to take another flyer, one that may or may not make it look like I know what I am talking about: I think the worst of this recession may be behind us, and I think an economic recovery will begin soon.

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You may ask yourself, how can this be? I mean, the U.S. economy experienced its most violent contraction in a generation during the fourth quarter, with real gross domestic product (GDP) plunging at 6.3 percent, according to the U.S. Commerce Department

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Going back to last year, the first sign of economic angst on my radar was the fact that houses in my neighborhood, which once were selling as soon as they were put on the market, were no longer being sold.

Then the housing market collapsed outright. Three houses in the neighborhood were foreclosed upon. However, in recent weeks, two of those foreclosed homes now have new owners, and the third is suddenly seeing a lot of traffic of prospective buyers.

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That anecdotal observation aside, some fresh economic data this week may also be telling us that we may be on the cusp of a rebound:

  • National sales of new homes rebounded 4.7 percent in February, according to the Commerce Department, after hitting a record low in January. Sales of new homes rose to 337,000 in February.
  • Applications filed to refinance an existing mortgage rose an unadjusted 41.5 percent last week from the week before, after an announcement by the Federal Reserve Board caused fixed-rate mortgage rates to fall, according to the latest Mortgage Bankers Association (MBA) survey.
  • Mortgage applications filed to purchase a home were up a seasonally adjusted 4.2 percent from the week before, the MBA said.
  • The stock market is showing signs of life. The Dow Jones Industrial Average is on pace to post its third consecutive week of solid gains.
  • The demand for machinery and other capital goods rose in February, driving orders for durable goods up 3.4 percent. The monthly rise was the first in six months.
  • Production of automobiles in Detroit actually increased 24 percent in February from the previous month. Consequently, General Motors Corp. told the feds it will not need the latest round of bailout cash infusions. GM is finally getting a handle on its legacy costs, with 7,500 union workers agreeing to accept buyouts.
  • On the technology front, the Nasdaq Composite Index soared so high this week that it erased all of its losses for the first three months of the year.

I am not alone in believing the start of economic recovery is just around the corner.

"With regard to the economy, we believe there are faint signs of light at the end of the tunnel," said Paul Kasriel, director of economic research for Chicago-based Northern Trust Corp., which has an office in downtown Milwaukee. Kasriel is the recipient of the Lawrence R. Klein Award for Blue Chip Forecasting Accuracy. "In sum, although the economy remains mired in a severe recession, we have seen nothing of late to dissuade us from our forecast of recovery getting underway in the fourth quarter of this year. In fact, what we have seen of late increases our confidence in the forecast."

Bruce Bittles, chief investment strategist for Robert W. Baird & Co. Inc., wrote in his "Market Commentary" bulletin Thursday that he is standing by his prediction that the economy will begin turning around by the end of the summer.

"Supporting our view for improving conditions in the economy later this summer has been the impressive performance by the stock market over the past two weeks. Since its intra-day low of 666 on March 6, the S&P 500 has rallied more than 23 percent. The Dow Industrials are now on pace to post a monthly gain for the first time since August 2008, and the S&P 500 is on pace for its first 5-percent monthly gain since 2003," Bittles said.

Bittles says spring is in the air, in more ways than one.

"Just as the seasons turn as we count the calendar months, the darkest days of this economic winter may now be yielding to an emerging spring – a time of uncertain weather (data), but also a time for cultivating if there is to be any hope of harvesting," Bittles said.

Sara Walker, senior vice president and investment officer at Associated Wealth Management in Milwaukee, is not ready pop any champagne corks just yet, but she is hopeful, nonetheless.

"’Flat is the new up’ could be the best way to describe recent economic reports and the stock market’s reaction to them. After being in the depths of despair just 12 trading days ago, the financial world is looking quite a bit sunnier," Walker said. "The main reason for a more encouraging outlook is that some very recent news is less bad than it has been! Investors look forward, and recent news reports indicate a glimmer of light on the horizon. Our outlook is for this recession to continue until late 2009, but with improvement each quarter over the prior quarter because of improved confidence."

The job market is a lagging indicator that won’t bounce back until the stock market, the banking system and the housing sector are stabilized, economist Michael Knetter, dean of the University of Wisconsin School of Business, told us at the Northern Trust Economic Breakfast in January.

To be sure, we know more layoffs are coming. Thousands of them, no doubt. The path to recovery won’t be a straight arrow.

We will know that a recovery has arrived when the BizTimes Daily starts reporting more stories about companies hiring new employees than stories about companies laying off employees.

For now, all we can do is exhale and hope we’re on the right path.

 

Steve Jagler is executive editor of BizTimes Milwaukee.

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