Good news with a big grain of salt

actual grain of salt

The Economist looks at the decline in jobless claims over the past four weeks and declares the U.S. recession to have “cleared the hump” (equivalent to “bottomed out,” from a “been down so long it looks like up to me” perspective).  But they predict a less-than-robust recovery:

‘It’s the return to the jobless recovery. And what that means for the population groups most affected—blue collar workers, those with less education, and so on—is that for years to come, work will be difficult to find and wages will lag. The recession will not end for everyone at the same time. Millions of workers will continue to struggle years after output numbers get out of the red.’

(h/t: Vanessa Cruz)

A commenter suggests that the decline in jobless claims may just mean that a lot of people’s unemployment insurance ran out, which, given the millions of long-term unemployed, is plausible.

Some stronger signs that recovery is on the horizon are in the just-released Index of Leading Economic Indicators, by the Conference Board.  The index looks at ten different economic data series (including unemployment claims) which tend to move in the same direction as the overall economy but a few months earlier.  Seven of those indicators were up in May; three were down.  Overall, the index grew 1.2%, its second monthly gain in a row and its largest gain since March 2004.

The analysts quoted in MSNBC’s article about the index do not predict that the economy will recover anywhere near as rapidly as it has receded.  “The recession is losing steam,” Conference Board economist Ken Goldstein said in the article. “If these trends continue, expect a slow recovery beginning before the end of the year.” Just like The Economist, he said it will be a while longer before the job market follows suit.  And Sal Gautieri, economist at BMO Capital Markets, reminds us that these leading indicators are useful but not fail-safe predictors of future turns in the economy.  “There’s no guarantee” that the uptick in the index means recovery is imminent; rather, “prospects of a recovery are still fragile.”

Here it is straight from the Conference Board:

‘The positive contributors — beginning with the largest positive contributor — were index of supplier deliveries (vendor performance), interest rate spread, stock prices, real money supply, index of consumer expectations, building permits, and manufacturers’ new orders for nondefense capital goods. The negative contributors — beginning with the largest negative contributor — were average weekly manufacturing hours, average weekly initial claims for unemployment insurance (inverted), and manufacturers’ new orders for consumer goods and materials.’

The story the media seem to have ignored in the Conference Board press release is that its Index of Coincident Economic Indicators fell in May, with declines in industrial production and employment offsetting increases in personal income and manufacturing/trade sales.  If recovery is just around the corner, we’re still a ways away from the corner.

And speaking of that corner, let’s not forget John Kenneth Galbraith’s admonition (h/t: Ron Brown):

The only function of economic forecasting is to make astrology look respectable.

UPDATE, 21 June:  One group of people that definitely is not buying predictions of an imminent recovery is the American public.  Last week’s Wall Street Journal poll asked people when they thought the recession would be over.  Only 1% said it’s almost over, and only 6% said they thought it’d be over in the next six months.  A plurality (32%) thought it would last one to two more years, 20% thought it would be over in six to twelve months, and 20% thought it would last for at least three more years.  (Incredibly, only 3% said they didn’t know — everybody’s an economic forecaster!)



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