Recovery Train Leaving the Station


good news graphA number of recent economic indicators suggest the economy is close to bottoming out:

  • Credit market tensions have eased substantially in the last few months as evidenced by narrowing spreads on investment-grade and high-yield bond debt, making it easier for companies to borrow (graph reproduced from Dismal Scientist).
  • Pending home sales rose 3.2 percent in March on the heels of a 2.0 percent gain in February, signaling that existing home sales could be nearing a bottom. 
  • The ISM nonmanufacturing index, although still indicating a contraction in the service sector, rose from 40.8 in March to 43.7 in April, its highest level since October. 
  • Initial jobless claims fell by 34,000 to 601,000 for the week ending May 2nd, well below the recent peak of 674,000 in the week ending March 28th. Continuing claims are still rising, however. 
  • Payroll job losses in April totaled 539,000. While this doesn’t qualify as good news, the total is down considerably from the recent peak of 741,000 in January, suggesting that the losses are moderating. The $787 billion stimulus package, which has yet to kick in, should provide further support for the labor market. A number of mainstream economists believe the big losses will begin to dissipate this month.