Bottoming out?

I’ve been skeptical all along.  So have Brad DeLong and Paul Krugman. It’s hard to say we’ve hit bottom when industrial production continues to fall, by 1.1% in May and by 13.4% over the past year, the worst 12-month showing since 1946.  Industrial capacity utilization is at a record-low 68.3%.  (The capacity utilization data go back to 1948.)

But it does appear that some economic indicators, like employment, are at least declining at a slower rate, so “bottoming out,” as opposed to “has already bottomed out,” may be appropriate.  The question is how long it’ll take for the economy to start growing again, as opposed to staying at a low level.  James Kwak of The Baseline Scenario offers a good rundown of the “green shoots” debate here.

Simon Johnson says the economy has begun to bottom out, but cautions that unemployment (traditionally a lagging indicator) has probably not yet peaked and could remain high for a few years.  Given that the unemployment rate is already 9.4%, that suggests double-digit unemployment in the near future.

James Hamilton is perhaps the most thorough of the skeptics, with a host of graphs that show areas of continued decline — total hours worked, unemployment claims (better last week, but still a falling four-week moving average), Chinese exports — and one unwelcome area of increase: gas prices.  It appears that $1 billion of the $1.57 billion increase in retail spending last month was on gasoline.  On the labor market Hamilton cites Jeffrey Frankel, who says the economy is no longer in free-fall but the labor data definitely do not suggest we’ve turned the corner.  In fact, Frankel notes that the American workweek has shrunk to its lowest level since 1964.

The latest “green shoot” is in housing starts, which rose 17% in May to 532,000.   Now, the Commerce Department, which generated the data, says in its explanatory notes that the housing data tend to be noisy and that trends take several months to spot.  Which does not seem to have stopped any media commentators.  The increase is not exactly a surge, as it follows a record-low total for April and is only 2% above the March total, but it is in line with housing starts for the first three months of the year.  The number of housing starts is still 45% less than a year ago, but perhaps that’s to be expected.  A rational housing market should stabilize somewhere well below where it was in the bubble.

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