Economic Report: The Trudge to Recovery

Economic reports continue to trickle down good news to consumers and retailers with analysts citing indications that the U.S. is in the early stages of rebounding from a recession. Meanwhile, economic data released last week underscored that the U.S. economic recovery, when it arrives, will be a long trudge, with a key factory index showing only marginally less weakness and unemployment tipped to hit double-digit levels.

“The national economy is showing some initial signs of stability, confidence is improved, the financial system is starting to heal, credit is starting to ease a bit,” Treasury Secretary Timothy Geithner said this week. “It’s just the beginning, however. We have a lot more work to do to lay the foundation for a sustainable recovery with the gains broadly shared among all Americans.”

Confidence among U.S. consumers jumped in May by the most in six years, fueling speculation the economy will recover later this year, the New York-based Conference Board said yesterday. The group’s sentiment index surged to 54.9, higher than forecast, from 40.8 last month. The surge in confidence came three months after the index had hit bottom in February at 25.3 points, the lowest level since tracking of the seasonally adjusted data began in 1967.

James Russo, Vice President Global Consumer Insights for The Nielsen Company, is optimistic, but cautious with the reports. The prevailing message from all economic indicators is that the U.S. economic fallout is nearing its bottom, making way for recovery. Still, that recovery won’t overnight.

“When that recovery materializes, it is not immediate,” Russo explained. “The overall message is that we want to temper the enthusiasm around the recovery. Even when it does rebound, spending will be restrained. That is they key point.”

Industry analysts concur, the National Association for Business Economics Outlook released a report Wednesday that stated while the economy is showing signs of stabilizing, the recovery will be more moderate than is typical following a severe downturn. The panel of 45 economists said it expects economic growth will rebound in the second half of 2009. However, the group still expects to see a decline in second-quarter economic activity.

About 74 percent of the forecasters expect the recession — which started in December 2007 and is the longest since World War II — to end in the third quarter. Another 19 percent predict the turning point will come in the final three months of this year, and the remaining 7 percent believe the recession will end in the first quarter of 2010.

"The good news is that the NABE panel expects economic growth to turn positive in the second half of this year, with the pace of job losses narrowing sharply over the remainder of this year and employment turning up in early 2010," said NABE president Chris Varvares in a written statement.

Financial markets slammed last week by suggestions of the unthinkable - that the United States could lose its coveted triple-A credit rating - were buoyed slightly this week with reports from Moody’s Investors Service which stated the rating is stable “even with a significant deterioration” in the nation’s debt, signaling confidence in a rebound from the recession.

Russo remarked the confidence expressed in recent reports is in the overall economy – equity markets; increases in affordable housing; leveling of energy costs; and huge stimulus in the pipeline. Consumers continue to be wary of what lies ahead as their key indicator is the labor market. According to the U.S. Bureau of Labor Statistics, the number of unemployed persons increased by 563,000 to 13.7 million in April, and the unemployment rate rose to 8.9 percent. Over the past 12 months, the number of unemployed persons has risen by 6.0 million, and the unemployment rate has grown by 3.9 percentage points.

“What is driving consumer behavior is fear and uncertainty around the labor market,” Russo noted. “While there is reason to be slightly optimistic that we have turned the corner, the recovery will be slow. What we saw in April is that there was a pickup in sales gains attributable to transaction increases - increased promotional activity, increased transaction sizes and increased visits to value channels. But what did not increase were shopper trips.

Additional economic indicators posted this week include The National Association of Realtors reporting home resales in the U.S. gained in April as foreclosure auctions and improved affordability spurred bargain hunters. NABE panelists predict new and existing home sales are close to their lows, with 72% expecting sales to hit bottom by the middle of 2009. More than 60% of those surveyed said housing starts would also bottom out at the same time.

Bloomberg reported yesterday that orders for U.S. durable goods in April jumped more than forecast as a rebound in auto demand and surge in defense spending overshadowed declines in business equipment that signals investment will be one of the last areas of the economy to recover. The 1.9 percent increase reported by the Commerce Department yesterday in Washington was the largest since December 2007, and followed a revised 2.1 percent drop in March that was more than twice as large as previously estimated. Excluding transportation, orders climbed 0.8 percent.

This week’s Labor Department report showed fewer Americans filed claims for unemployment benefits last week, a sign the biggest rounds of firings may be over. Initial jobless claims fell by 13,000 to 623,000 in the week ended May 23, from a revised 636,000 the prior week, the report showed.
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