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Economy finally turning corner

Updated: May 3, 2013 12:14PM



With apologies to David Letterman, here are the top 10 reasons to believe that the recession is over -- including the one reason you might not believe it's over. And a reminder that even if the recession is officially over -- which won't be declared until hindsight -- you might not feel it personally for quite a few months.

10. The recession is over because it's time for the recession to be over.

The average recession since 1940 lasted 10.1 months. The two previous longest recessions since the Great Depression were the 1973-74 recession, which lasted 16 months, and the 1881-82 recession, which also lasted 16 months. The current recession officially started in December 2007 and thus has now lasted 19 or 20 months. Enough already.

(Yes, it's possible for recessions to last longer. The Depression that started in 1929 officially lasted 43 months, before moving out of negative territory, but the economy fell back into a 13-month recession in 1937.)

9. The recession is over because consumers have started saving again.

Every month since June 2005 until recently, the savings rates has been negative or zero. In other words, consumers had been financing their lifestyles on their credit cards. But consumers started saving last fall, and the savings rate has now surged to 6.9 percent, a 15-year high as of July.

8. The recession is over because the housing market has started to rebound.

Sales of new single-family homes rose 11 percent in June, the largest monthly increase in more than eight years, while the inventory of unsold new homes fell to the lowest level in more than a decade. And sales of existing homes rose for the third consecutive month. Median home prices continued to fall for the 13th straight month, albeit at a slower rate than previous months, according to the Standard & Poor's/Case-Shiller index.

7. The recession is over because CEOs are more confident.

You might not be too impressed with corporate performance, but at least chief executives are becoming more optimistic. The Conference Board polls CEOs quarterly on their outlook. The most recent survey shows almost 55 percent of CEOs now expect economic conditions to improve in the next six months -- up from 17 percent last quarter. This is the second-largest increase in the survey's 23 years -- surpassed only by the jump out of the 2001 recession. (Thanks to Jim Stack of InvestechResearch for highlighting this indicator.)

6. The recession is over because the Leading Indicators are saying so.

The Conference Board Leading Economic Index increased for the third consecutive month, rising 0.7 percent in June. The six-month change in the index has risen to 2 percent -- up from a decline of 3.1 percent in the preceding six months.

5. The recession is over because unemployment is not growing as fast.

It's not July's one-month decline in the overall unemployment rate that's so meaningful. It's the declining number of jobless claims each week that shows signs the recession is over. Yes, roughly 550,000 new jobless claims were filed last week, but that's far lower than we've seen this spring. And the four-week average of "continuing claims" is nearly a half million lower than it was in June.

4. The recession is over because the Fed chairman says it is over.

And the Fed Chairman should know. In testimony before Congress on July 21, Fed Chairman Ben Bernanke restated his belief that the economy should start growing again in the second half of the year.

3 The recession is over because the stock market says it's over.

The stock market always leads the economy and anticipates earnings. It did so on the downside, starting in August 2007 -- and so it has to the upside, starting in early March. The most recent 11 percent gain in the major indexes since July 8 is surely more than the typical "summer rally." The stock market is trying to tell you something.

2. The recession is over because all that money the Fed created is finally moving into the economy.

The first rule of investing is: Don't fight the Fed! That's a shorthand way of saying that money is what makes the economy move. It's the fuel for the economic engine. Yes, the engine can be "flooded" if too much money is created. But unless an economy has fallen over the cliff (think Depression), a huge influx of money and credit will get things moving again. Bernanke promised he would put as much money into the economy as needed. And he delivered.

1. And the No. 1 reason the recession is over is you're still skeptical that it isn't!

You just came up with a dozen reasons to refute this column, as you were reading it. You thought about the continuing unemployment. You thought about the rising tide of foreclosures and bankruptcies. You thought about the stores and restaurants that are closing everywhere you look. And those are the very reasons that this could be the bottom in the economy.

Because you didn't see the "top" in the midst of all the prosperity at the time, you are equally unlikely to see the "bottom" in the midst of this misery. And that's The Savage Truth.

Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.



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