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MAJOR INDICATORS REMAIN MIXED, FORECAST WEAK RECOVERY

Kiplinger’s Recovery Index remains mixed.  While the index shows that the recession has ended, it is also forecasting a weak recovery.  The Index is comprised of 6 important economic indicators – interest rate spreads, jobless claims, retail sales, existing home sales, consumer confidence and durable goods.

Spreads have no doubt improved substantially.  While this is a sign that lending markets have improved there is still little evidence that consumers are ready to begin borrowing again and that banks are prepared to stop hoarding cash.  All in all, I would say the jury is still out on the health of the credit markets.  Our banking system is unlikely to return to sustainable health without first reducing the power, influence and size of the banking system & unfortunately the opportunity for that may have passed us by earlier this year.

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The real estate market has also shown signs of improvement over the last 6 months.   While Kiplingers believes this is a positive sign I remain in the camp that believes the housing market would be flat on its back without government aid and positive seasonal influences.  Whether this move higher is sustainable is still very much in doubt.

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Jobs remain the weakest component of the economy.  It’s astonishing that we are so far into a so-called recovery and weekly jobless claims are still at half a million.  Unfortunately, the government stimulus is not impacting the jobs market in the same positive fashion that it has in other parts of the economy.  As we have mentioned previously, the recovery in jobs is likely to be very long and drawn out.

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Consumer confidence has improved off the market lows, but remains weak alongside the job market and the health of consumer balance sheets.  Consumer confidence is unlikely to improve substantially without a recovery in the jobs market and further consumer de-leveraging.

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Retail sales have begun to show tepid signs of improvement over the last few weeks.   It’s hard to imagine that this uptick will be sustainable without a turnaround in the jobs market, however.

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Durable goods remain weak as demand for big ticket items is depressed and companies continue to approach the economic recovery with caution.

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While the recession is almost certainly over, the strength and duration of any recovery is still very much in doubt.

To read more on the Kiplinger Recovery Index please see here.

Source: Kiplinger

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