Recession is over, says economist
According to Dennis Gartman, a number of indicators point to a recovery that is just getting started.
By Scott Cendrowski, reporter
August 6, 2009: 12:41 PM ET
NEW YORK (Fortune) -- When economist Dennis Gartman told subscribers of his newsletter in the fall of 2007 that the U.S. was entering a recession, the Dow was at 13,500, and the official government call wouldn't come for another full year.
Now he's ahead of officials and forecasters again. According to Gartman, the U.S. recession that started in December 2007 is done.
"We saw it happen two weeks ago -- it's over," he said in a recent interview.
Other well-known economists and market watchers have recently been hinting at the same thing. NYU economics professor Nouriel Roubini, also known as "Dr. Doom" for his prescient predictions of the worldwide downturn, says the U.S. recession will end later this year. Treasury Secretary Timothy Geithner said last weekend that the recession is easing. And President Obama told Univision last week, "We maybe are beginning to see the end of the recession."
But Gartman says the Great Recession ended in July.
"Too many people get too arcane and have too many arguments about why an economy goes into or comes out of a recession," he says. "Having done this for 35 years, I've fallen into using just a couple of indicators that characteristically have done a very good job."
The first is a spike downward in the number of weekly jobless claims, which unlike the unemployment rate, focuses on newly laid off workers. Gartman doesn't seek a specific percentage decline (such as when a 20% decline denotes a bear market), but instead he waits for a sharp downward trend. "It's like the definition of pornography: I'll know it when I see it," he says.
He saw that downward spike last month. Weekly jobless claims rose to 658,000 in the first week of March but have since declined to a seasonally adjusted 584,000 for the week ending July 25. "That's enough of a spike," says Gartman, who considers the recent declining 4-week average of jobless claims -- the less volatile average recently reached its lowest point since January -- to be "icing on the cake.''
Gartman then looks at a ratio from The Conference Board: the percentage of coincident economic indicators to lagging indicators.
The ratio measures changes in the economy by dividing coincident (or real time) economic indicators like industrial production and personal income by lagging indicators, like the unemployment rate. So, if during a recession coincident indicators increase at a faster clip than lagging indicators, the economy is expanding and the ratio rises.
As Gartman notes, that ratio has been rising three months in a row. It increased to 90.5 in June from 89.4 in March. According to Gartman and Conference Board data, the fall in jobless claims and a rise in the ratio correlate with the end of recessions since 1959.
Gartman can't say why these two metrics out of hundreds of other have corresponded so well with economic recoveries. "I'm not one to get caught up in the explanation of things if I see the correlations hold," he says, noting that they poorly predict the beginning of recessions.
He expects economic indicators to slowly turn positive by October, but he's careful to remind investors that "the news is horrible at the bottom of a recession. It's going to be terrible for another couple months." Because it's a lagging indicator, Gartman expects unemployment to rise into 2010.
Critics could argue that Gartman's model would have a hard time holding up in the worst recession in more than 70s years -- after all, the Conference Board's ratio didn't even exist in the 1930s. But he's standing firm on its consistency.
"Every time can be different," he explains, "but they very rarely are. Every time you bet on something being different, you pay dearly for it."
- posted on 08/13/2009
Retail sales dip unexpectedly, jobless claims rise
AP ¨C In this Aug. 11, 2009 photo, shoppers move through the check-out line after a shopping trip to Wal-Mart ¡ By CHRISTOPHER S. RUGABER, AP Economics Writer Christopher S. Rugaber, Ap Economics Writer ¨C 59 mins ago
WASHINGTON ¨C Retail sales disappointed in July and the number of newly laid-off workers filing claims for unemployment benefits rose unexpectedly last week. The latest government reports reinforced concerns about how quickly consumers will be able to contribute to a broad economic recovery.
"There is really no positive spin to put on these numbers," Jennifer Lee, an economist with BMO Capital Markets, wrote in a research note. "The U.S. consumer remains very weak. The jobs situation, while slowly improving, is still dismal."
The Commerce Department said Thursday that retail sales fell 0.1 percent last month. Economists had expected a gain of 0.7 percent.
While autos, helped by the start of the Cash for Clunkers program, showed a 2.4 percent jump ¡ª the biggest in six months ¡ª there was widespread weakness elsewhere. Gasoline stations, department stores, electronics outlets and furniture stores all reported declines.
Some of Europe's largest economies also benefited from government programs to support the auto industry. Germany and France returned to economic growth in the second quarter, raising hopes the recession in the 16-country euro area may end sooner than thought. Europe's two biggest economies each grew 0.3 percent from the previous three-month period, surprising analysts and technically ending their worst recession in decades.
The July dip in U.S. retail sales was the first setback following two months of modest gains. Excluding autos, sales fell 0.6 percent, worse than the 0.1 percent rise economists had forecast. And excluding both auto and gas purchases, retail sales fell 0.4 percent ¡ª the fifth straight monthly decline.
Households are working to pay down debt and add to savings, longer-term trends along with little job growth making it "probable that the U.S. consumer will not be much of a help during the early stages of the economic recovery," Joshua Shapiro, chief U.S. economist at consulting firm MFR Inc., wrote in a note to clients.
The Labor Department said initial claims increased to a seasonally adjusted 558,000, from 554,000 the previous week. Analysts expected new claims to drop to 545,000, according to Thomson Reuters.
The number of people remaining on the benefit rolls, meanwhile, fell to 6.2 million from 6.34 million the previous week. Analysts had expected a smaller decline. The continuing claims data lags initial claims by one week.
The four-week average of initial claims, which smooths out fluctuations, rose by 8,500 to 565,000. That reverses six straight weeks of decline.
A weak job market hurt sales last month. Gas station sales plunged 2.1 percent in July, due more to falling pump prices than weak demand. Excluding that drop, retail sales would have posted a modest 0.1 percent increase.
Department store sales fell 1.6 percent and the broader category of general merchandise stores, which includes big chains such as Wal-Mart Stores Inc. and Target Corp., posted a decline of 0.8 percent.
Wal-Mart on Thursday reported virtually flat second-quarter income compared with a year ago, but the results beat Wall Street expectations and the world's largest retailer raised the low end of its profit outlook as a series of cost-cutting moves draw frugal shoppers away from rivals.
Still, the July weakness in overall retail sales highlighted worries about the potential strength of the recovery from the recession. Consumer spending accounts for about 70 percent of total economic activity.
"Households are in no position to drive a decent economic recovery," Paul Dales, U.S. economist at Capital Economics, wrote in a note to clients.
While there have been recent signs of stability in the U.S. housing market after three years of plunging prices, record foreclosures persist. The number of U.S. households on the verge of losing their homes rose 7 percent in July, as the foreclosure crisis continued to outpace government efforts to limit the damage.
Foreclosure filings rose 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice. That's the highest monthly level since the foreclosure-listing firm began publishing the data more than four years ago.
The Federal Reserve on Wednesday delivered a more upbeat assessment of the economy. The central bank held interest rates at record lows and said it would slow the pace of an emergency rescue program to buy $300 billion worth of Treasury securities, shutting it down at the end of October, a month later than previously scheduled.
The Fed again pledged to keep a key bank lending rate near zero for "an extended period" to nurture an anticipated recovery.
Fed Chairman Ben Bernanke and his colleagues said the economy appeared to be "leveling out" ¡ª a considerable upgrade from their last meeting in June, when the Fed observed only that the economy's contraction was slowing.
On Wall Street, stocks edged up in afternoon trading Thursday. The Dow Jones industrial average gained about 15 points, while broader indices also rose.
Initial claims reflect the pace of layoffs by employers. The Labor Department last week said companies cut 247,000 jobs in July, a large amount but still the smallest number in almost a year.
The unemployment rate dipped to 9.4 percent in July from 9.5 percent, its first drop in 15 months.
There were 617,000 new jobless claims in late June, before the figures were distorted last month by a shift in the timing of temporary auto plant shutdowns. That shift caused claims to drop sharply and then jump up last month.
Claims fell steeply last week, however, when the data were no longer affected by the distortions.
Still, initial claims remain far above the roughly 325,000 that economists say is consistent with a healthy economy. New claims last fell below 300,000 in early 2007.
Including federal emergency benefit programs, 9.25 million people received unemployment compensation in the week ending July 25, the latest data available. That's down from a record of 9.35 million the previous week. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states.
- posted on 08/13/2009
It all depends on which group of people you are talking about. For the people who created this recession - those who work for Wall Street and the big banks, as well as AIG, the recession is definetey over - far behind them. They are better off than before. It is party time for them. However, for the people living on main street, the people who pay their tax to save those fucking banks, and the people who struggle to pay mortgage, utility bills, college tuitions, and healthcare bills, their recession is far from over - peobably will never be over. This is the reality. - Re: Recession is over. Party time!posted on 08/13/2009
you are absolutely right. Recession is far from over, the crash of commercial real estate is just starting...look around, there are so many empty buildings...
But friends from NYC all report exciting news... all hotels are booked up, more entertaining events than ever, more crazy parties than the 80s, than the dot com rush...
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