We have recently seen a number of indications that the downturn is slowing and that the bottom of the cycle may be in sight. While these indicators suggest a slowing in the decline of the economy, no one data point is conclusive. Economists tend to look at trends in leading indicators as a way to confirm that the trough in economic activity will occur several months into the future. Right now, some of the positive signs include:
Retails sales declined at a much more modest rate in February while sales at US wholesalers rose.
Wholesale inventories had a record decline in February implying that an increase in demand will result in an increase in orders, production and employment.
Consumer Confidence had a slight rise in March, but is still at a very, very low level.
Job losses, according to some analysts, may have peaked in January.
Home sales are up and inventories of unsold homes are falling.
And of course, the stock market rally, if it holds, is a solid leading economic indicator.
If all these signs are indeed the initial signs of trend movements, then the trough in economic activity would take place in 6 - 9 months; that is, by the end of 2009 or early 2010.
While this news is not conclusive, until the last few weeks, most of the indications from these data were negative.
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Andrew, do you expect Q1 earnings reports to be pretty poor and, if so, do you expect those reports to undermine the positive economic new that is out there?
ReplyDeleteHi Mike: I do expect poor earnings but I also believe most analysts have already built these negative expectations into their behavior. The optimist would argue that to the extent that there are positive earnings surprises that these announcements would have more impact than the already anticipated negative earnings reports.
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