Searching for signs of the recession's end

With the economy in its 16th month of recession, more people are asking when things will get better. What should we look for?

There is no one magic indicator, unfortunately.

Some swear by the stock market. Equity investors, they say, sense the turn in the overall economy, pushing prices higher before the economic data confirms the expansion is underway.

However, there are plenty of people who’ll tell you that the market rally in the last two weeks may not have staying power. In fact, the major indexes fell on Friday more than 2 percent each.

Still, the stock market as leading indicator makes intuitive sense: Professional investors are risk-takers willing to put their money where their convictions are. Get proven right more often than wrong, and you’ll make money.

That’s why the economists at IHS Global Insight last week mentioned the stock market as one thing to watch as a leading indicator for when the recession is over. IHS also watches commodity prices (which also rallied last week as the U.S. dollar weakened) and housing permits, a sign of future construction.

The Census Bureau and the Department of Housing and Urban Development released building permit numbers last week. The report showed permits for housing units at a seasonably adjusted annual rate of 547,000 in February. A year ago, the rate was 981,000. Little sign of life in housing.

Another leading indicator that draws attention is the Architecture Billings Index compiled by the American Institute of Architects. Based on surveys of architects, the index is a forecast of nonresidential construction activity nine to 12 months from now.

Released on Wednesday, the index rose two points to 35.3 in February from its historic low score in January. But any score below 50 indicates a decrease in billings, so don’t count on nonresidential construction leading a recovery.

Thursday brought the Leading Economic Index from the Conference Board. There are 10 measures that make up this index, including interest-rate spread, real money supply and initial claims for unemployment insurance.

The LEI declined in February, after it had blipped higher in January. The overall trend has been downward since July 2007, but the rate of decline has “moderated slightly,” according to the Conference Board.

These national barometers are all flashing red. Locally, much of the data suggests the recession’s blow may have numbed our region but hasn’t put it into a coma. Housing prices here haven’t cratered. The unemployment rate remains below the national rate.

Let no one suggest that conditions are improving in the Philadelphia region, however.

Every month, the Federal Reserve Bank of Philadelphia calculates leading indexes based on a several economic measures for Delaware, New Jersey and Pennsylvania. All three states showed a negative reading, meaning activity is declining. New Jersey fared the best with a leading index of minus 2.5 for January.

As for Pennsylvania, the leading index was minus 7.7 in January. The reading has been negative since August 2007, and January’s was the worst since April 1982.

Delaware is a such small state that the data can be very volatile, according to Jason Novak, the Fed’s senior economic analyst who works on the indexes. For January, Delaware’s leading index was minus 16.1 - the worst figure since the index started in May 1979.

So the trends are bad. All three states’ economies are expected to contract into the fourth quarter with Pennsylvania and Delaware experiencing “significant contraction,” the Fed says.

All recessions come to an end sometime. IHS Global Insight has taken to calling the current global downturn the “Great Recession.” But the forecasting firm says the United States is a long way from experiencing a depression.

In fact, the enormous fiscal and monetary actions that the United States has undertaken so far probably mean we’ll emerge from the recession sooner than the rest of the world.

Maybe that’s in the second half of 2009, maybe 2010. The signs just aren’t that clear.


Today: RCM Technologies; Tuesday: C&D Technologies, New Horizons Worldwide; Wednesday: Encorium Group; Friday: TelVue.