Seeing The Signs Of Economic Recovery

How do we know when the recession will end? Here are some clues.

May 15, 2009 Michael Sarzo

With the nation still mired in the worst economic downturn since The Great Depression, some economists are optimistic that a recovery is on the horizon. Here's why.

With the nation still mired in the worst economic downturn since The Great Depression, some economists are optimistic that a recovery is on the horizon. Here’s why.

The stock market

When the Dow Jones Industrial Average, considered the market bellwether for the nation’s economy, dropped to a close of 6,547 on March 9, 2009, some economists were projecting that the Dow could drop as low as 5,000. The Standard & Poor’s 500, an index of 500 large-cap stocks, dropped to 677 points, its lowest total since 1997. Times seemed bleak and people were desperately searching for any reasons for optimism.

Several economists have pointed out in various interviews with the media that rises in the stock market often predate an economic recovery. They say that economic recoveries of the past began with the stock market rising. Thus far, the markets have steadily risen since their March 9 nadirs.

Banking, businesses pick up steam

In a profound credit crisis such as the one brought about in part by the sub-prime mortgage crisis, banks generally stop lending, grinding the machine of credit to businesses to a halt. Without credit, businesses began to cut spending wherever possible. Both the George W. Bush and Barack Obama presidential administrations sought to kick start the U.S. economy by bailing out banking companies such as American International Group or investing in banks. The Bush administration pushed Congress to pass the Troubled Asset Relief Program in spite of conservative objections that such a move prevents the free market from running its course. Media reports suggested that Congress and President Bush moved so hastily to approve TARP that they didn’t build in enough safeguards. Then, reports of AIG providing top employees with massive bonuses surfaced, drawing the ire of millions of Americans.

Meanwhile, President Obama pushed for a massive, $787 billion economic stimulus package to include infrastructure projects, tax credits for first-time homebuyers, tax breaks resulting in more take-home pay for employees, and an increase in Supplemental Nutrition Assistance Program benefits, commonly known by their traditional name, food stamps.

Jobs lag

Many economists have said that when an economy recovers, the last segment to pick up is employment. Even with several signs pointing to an economic recovery in the relative near term, some forecasts project unemployment will still hit 10 percent by the end of the year or the beginning of 2010. A May 6, 2009 CNNMoney.com story quoted Gad Levanon, senior economist at The Conference Board as saying that jobs lag behind other economic indicators of a recovery because employers wait until they’re certain a recession has ended before hiring again. He said that once an economy improves, it could take three to six months before employment picks up again.

While recent signs have pointed to the nation’s economy picking itself up from the abyss, the road back to economic prosperity is still a long and arduous one. Hopefully, this helps provide some of the key signs.

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