In the past few months, the Conventional Economic Wisdom (CEW) has swung from a recession of indefinite duration (but always lasting at least 18 months longer) to a jobless recovery. This can only mean one thing: job growth in the United States is about to explode.
This is not based on any particular insight I have, just the observation that job growth is a lagging economic indicator, and the CEW is always looking in the rear-view mirror. The CEW saw continued growth in the first half of 2008 after the recession had already started, hard times as far as the eye could see in the first half of 2009 as the economy bottomed out, and now that growth is returning the CEW insists that it isn't really at least not for most people.
So I will once again stake out my contrarian position and claim that the pessimistic CEW is a leading indicator for imminent job growth.
APPENDIX: My contrarianism has actually served me reasonably well. Looking through my blog archives, I find that at the end of 2005 I wrote that there would probably be a recession starting by the end of 2007 (true, but barely). At the beginning of 2008 I wrote that we were already in a recession (before the CEW acknowledged the fact) but that we were close to the bottom (sadly, too optimistic). Then at the beginning of 2009, as the economy was bottoming but the CEW saw nothing but pessimism, I started looking for signs of hope. This time around I could be completely off-base or way too early, but by golly I'm going to stick to my contrarian optimism until I'm right.
The cul-de-sac we live on has about a dozen homes, and it's an amazingly stable neighborhood. More that half the homes have been owned by the same people for ten years or longer. Two or three of the houses are still in the hands of the original owners (most of the houses having been built about 25 years ago).
For the past two years, there has been at least one house for sale at all times, and for several months during 2008 there were three houses on the market at the same time. It used to be something of a rarity to have even one house on the market, and the last time there were two for sale at once was 12 years ago, when we bought ours.
This weekend, the last house on our block sold. For the first time in a couple years, there are no houses for sale on our block.
Today's Sunday paper was the thickest I can recall since Thanksgiving. Since most of the heft of the Sunday paper is advertising supplements and circulars, this is a strong indication that advertisers are coming back.
Target took out a huge full-color spread in the middle of the A-section, at least four full pages and maybe more.
This is an especially good sign given how hard newspapers have been hit in this downturn. If advertising dollars are truly up, it comes not a moment too soon for them.
I've noticed in the past few weeks that morning rush hour traffic has been getting worse.
Now, my commute is not very long (less than ten miles), and the traffic on the particular highways I drive has never been that bad to begin with. If traffic jams really are getting worse generally (and not just for me), then this is a sign of an improving economy. More traffic at rush hour means more people going to jobs, which means more people employed.
Jeff Matthews reports on his blog today that Williams-Sonoma thinks its business may be bottoming out, and that the November-December period may have been the worst for their high-end housewares.
Today's big economic news was that February's housing starts--the number of new homes which began construction during the month--jumped in a big way from January. One month does not make a trend, but a lot of people smarter than I think that housing starts are a leading indicator for when we enter or exit a recession.
The pessimistic counter-argument would be that housing starts have fallen almost 80% from the peak, and since they can't go negative there has to be a bottom somewhere.
Which would also be my point: there has to be a bottom somewhere. We may be at that bottom right now, though we won't know for sure for several months to come.
Retail Sales statistics for the month of February were released this morning, and they are down only 0.1%. Just as important, the January number was revised up (1.8% growth from the original 1.0% growth). Some sectors were better than others, and car sales were among the worst.
This relatively stable statistic--still subject to revision of course--suggests that some of the fear we saw in the last few months of 2008 may be starting to subside.
According to Calculated Risk, wholesale prices for used cars and trucks rebounded significantly in February, after a huge drop in January. Indications are that buyers are making larger down payments and taking out shorter duration loans. It appears that many people are switching from buying new cars to used.
I view this as optimistic for several reasons. First, it shows that these durable assets (cars, that is) do have value and are not plummeting to zero. That gives more confidence to both buyers and lenders that they're not just throwing their money down the toilet. Second, it shows that there is still fundamental demand for vehicles despite the inventory overhang, and there is a price where people will buy. Third, it indicates that the demand for used vehicles is matching the supply, and some of that demand will eventually spill into new vehicles as the supply of used cars diminishes.
Every month or so, I sit down with a small group of CEOs of other small technology-based businesses here in the Twin Cities. It's an informal place to talk through our problems, share experiences, etc., in a confidential and safe environment.
This month we started the meeting by going around the room sharing our views of the economy; naturally I shared my determination to seek out optimistic indicators no matter how foolish it makes me seem. Pretty much everyone was gloom-and-doom.
But at the end of the meeting, one of the other CEOs made an interesting observation: "Remember how we started the meeting talking about how bad the economy is? Isn't it interesting that nearly every one of us said that our business right now is picking up, and some of us are doing better than ever."
This week, for the first time in about ten years, I had to buy a suit. I only need to wear a suit a few times a year, and I had been living off the inventory I collected during my investment banking days. That inventory finally ran out, so back to the menswear store I went.
(Incidentally, the new suit today, in 2009, cost less than a new suit of similar style and materials ten years ago even though it had to be special ordered.)
While at the store, I happened to chat with the owner and asked him how business was doing. His response: January and February were brutal, but things seem to be picking up just a little now. (They did have some deep discount items, but it was end-of-season stuff like sweaters.)
High end men's clothing is a very discretionary item, so when that starts to tick up, it means that some people are finding the money to update their wardrobe, or that they can't defer it any longer.
I've been optimistic that we're nearing the bottom of the recession since January 2008. Long enough that I'm starting to feel foolish.
But you know what? I've decided that I don't care. My company is doing OK (never better, in fact), and the only way to deal with this murk we're in is to keep your head down and push forward.
So I decided a couple weeks ago that I would make a point of looking for signs that the economy is bottoming out, or even maybe starting to improve a little. Maybe this is early, maybe we've got years to go before the recovery starts, but in the meanwhile I'm going to search for the signs of hope.
And someday the economy will recover, and when it does, you heard it here first.
On to my first Optimistic Sign: The Media Defaults to Pessimism
All through 2008, the media (and especially the financial media like the Wall Street Journal) wrote articles about looking for the bottom: how great the stock market prices were, the great deals you could get on a foreclosed house, etc.
Since January, however, I've noticed the tone of the articles change. Now they say that things could get much worse, don't buy into a sucker rally, the recession will last much longer.
On NPR a couple weeks ago, there was an interview of a government official (I think it might have been Gordon Brown, Prime Minister of the UK) where the interviewee mentioned a forecast that the economy would bottom (that is, stop getting worse) sometime in the second half of 2009 and show some modest growth in 2010.
The striking thing was how hostile an skeptical the interviewer was to this pronouncement: "Really? Do you honestly think we're going bottom out any time before the end of 2010?" (or words to that effect).
Remember, Gordon Brown does not know when we'll hit bottom. Neither does the interviewer. Nobody does. We could be at the bottom right now, and we would not know it for months.
But the default position seems to have become that this recession will last at least until the end of 2010. That's almost two more years of recession, and a recession lasting over three years total--exceptionally long in postwar history. Is it possible? Sure. Plausible? Maybe. Certain? No way.
I consider this irrational gloominess (the opposite of Alan Greenspan's famous irrational exuberance) an optimistic sign, if for no other reason than the pundits are always wrong.
But less cheekily, it means that we are emotionally accepting the fact of the recession which is an important step to moving on. It's the moving on which produces a recovery.