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Here’s a cheery headline making the rounds today:
“New signs emerge that recession may be near bottom”
Too bad the “evidence” put forth in the accompanying article isn’t exactly what I’d call compelling. The Associated Press’ Christopher S. Rugaber wrote today:
New signs that the recession could be nearing a bottom emerged Thursday, as factory orders were far better than expected and the Dow industrials surged over 8,000 for the first time in two months.
The Commerce Department said orders for manufactured goods rose 1.8 percent in February, reversing six straight monthly declines and easily beating estimates of another drop. Other economic indicators came in better than expected Wednesday, including construction spending and pending home sales.
The Associated Press piece suggested the recession could be near a bottom based on “far better than expected” factory orders that were up 1.8% in February from the previous month. Pulling up Commerce Department data for orders of manufactured goods from the beginning of this recession (December 2007) reveals that since that time, orders for manufactured goods were up a total of 7 out of 15 months for which data is available for. Factory order levels even went on a tear and went up month-over-month from March through July of last year. In fact, February’s reading of 1.8% was surpassed back in December 2007 and June 2008, which saw increases of 1.9% and 2.1%, respectively.
All of this during the ongoing recession.
Based on these findings, I find it hard to argue that a one-month increase in factory orders means we’re near a bottom.
The AP piece also suggests we could be nearing a bottom based on surging stock prices. Long-time readers of this weblog might remember something I wrote back on October 14, 2007:
Wall Street As An Economic Barometer
The Wall Street Journal’s Economics Blog caught up with Merrill Lynch economist David Rosenberg back on October 2 as he examined the effects of Federal Reserve interest rate cuts on the U.S. stock market. Rosenberg found that the stock market always rises in the first month after an initial interest-rate cut, and the average increase is almost 4%. It’s interesting to note that since the federal funds rate cut back on September 18, the Dow Jones Industrial Average and the S&P 500 are up 2.6% and 2.8%, respectively.
Rosenberg also looked at whether or not recessions happen while the stock market is booming. In looking at the 1990-91 recession, he saw that the S&P 500 peaked on July 16, 1990, after rising 3.4% over the previous month. The recession also happened to start that July. Looking back further, Rosenberg studied the recession of the early 1980s and found that the stock market peaked on February 13, 1980, even though a recession had started the month before.
As Rosenberg’s findings demonstrate, surging stock prices don’t exactly correlate with a robust economy. Stock indexes may even peak— just as the economy starts to nosedive.
Once again, the Dow Industrials heading over 8,000 for the first time in two months isn’t a convincing argument that we’re about to see an economic turnaround.
Rugaber also threw in two more indicators for which I had problems seeing a correlation. He wrote:
Other economic indicators came in better than expected Wednesday, including construction spending and pending home sales.
Take a look at the following chart for U.S. construction spending from the beginning of the recession:

Source: New York Times
As you can see, monthly construction spending actually improved month-over-month in March, May, August, and September of last year. And still, recession. I’d be hesitant to declare a bottom is near from one month of “better than expected” construction spending data.
Finally, we come to pending home sales. From an AP colleague of Rugaber’s, Alan Zibel, on Wednesday:
An index that tracks signed contracts to purchase previously occupied homes rose in February from a record low a month earlier as buyers took advantage of deeply discounted prices and low interest rates.
The National Association of Realtors said Wednesday said its seasonally adjusted index of pending sales for previously occupied homes rose 2.1 percent — in line with expectations — to 82.1 in February from January’s record low of 80.4.
Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer for future home sales.
However, Zibel dispelled the notion of a U.S. housing market recovery taking place anytime soon when he wrote:
Prices, however, are expected to keep falling for at least another year. Tens of thousands of homes are tied up in the foreclosure process and not yet for sale. Plus, as the recession deepens and job losses mount, many buyers are likely to stay on the sidelines.
The Realtors estimate that 45 percent of existing home sales are now foreclosures and other distressed properties.
Pending home sales up? Yep, but almost half are being sold at deep discounts. Not exactly the sign of a healthy real estate market, or offering hope for a consumer spending rebound, if you ask me.
Folks, I hate recessions as much as the next guy. But if you’re going to tell me we’re coming close to a bottom, you darn well better have better evidence than this.

And before I forget, Rugaber also wrote the following in a separate piece today:
Fresh signs that factories are coming back to life and a bank CEO’s encouraging outlook fueled more hopes Thursday that the economy may soon emerge from the cellar, briefly lifting the Dow Jones industrials over 8,000 for the first time in two months…
Bank of America CEO Ken Lewis also bolstered the financial markets when he told CNBC that the recession is “getting close to the bottom.”
You remember Ken Lewis, don’t you? Back on June 21, 2007, I wrote on Boom2Bust.com:
In an interview with Bloomberg on Tuesday, Bank of America’s Chief Executive Officer Kenneth Lewis said the U.S. economy will pick up speed due to a recovery in the housing sector. Lewis predicted, “You’ll see the economy begin to pick up in the third and fourth quarters,” and the slowdown in home sales is “just about to be over.” He went on to say that the housing market will begin to improve in the next month or two, forestalling a recession, according to Bloomberg. Lewis believes that job growth will lift home prices and reinvigorate construction by early 2008.
That was summer 2007. A year later, on July 21, 2008, I wrote:
This morning, I read a piece by Marshall Eckblad of the Dow Jones Newswires on the CNN Money website. Bank of America Corp. Chief Executive Ken Lewis shared his outlook on the U.S. economy and housing market earlier today, after which Eckblad wrote:
Chief Executive Ken Lewis said Monday that the U.S. economy would see “sluggishness” through the rest of 2008 but eventually would stabilize this year and then begin its recovery in the early part of next year. Lewis made the comments during a conference call with analysts to explain the bank’s second-quarter earnings results…
Lewis said one component of those optimistic forecasts is his projection that the peak of the housing crisis is growing closer. “We see housing price depreciation being mostly over this year, maybe going into next year,” Lewis said.
I’ll leave you all with the following excerpt from that July 2008 post:
The Wall Street Journal’s Mark Gongloff pointed out yesterday that some individuals keep calling for a turnaround in the economy, housing market, what have you, only to be proven wrong time and time again. Gongloff said:
Like Chicago Cubs fans always looking to the next season, there are analysts who have been calling for a turnaround for months despite evidence to the contrary, yelling their hearts out for what so far has been a losing cause.
According to their theory, this has all been a fever dream, a midcycle slowdown like the one the economy suffered in 1998, when stocks briefly swooned, but the technology bubble quickly went right back to inflating. This is the same crowd who dismissed the collapse of the housing market because it’s just a small part of gross domestic product and who said the subprime mortgage meltdown would be no big deal.
And now, $400 billion in losses and one bear market later, they’re still calling for the rosy outcome…
Sources:
“New signs emerge that recession may be near bottom”
Christopher S. Rugaber
Associated Press, April 2, 2009
“US Factory Orders-STATS-Historical, New Orders”
FXStreet.com, April 2, 2009
“Pending home rise 2.1 percent in Feb. from Jan.”
Alan Zibel
Associated Press, April 1, 2009
“More signs of economic hope; grim jobs report due”
Christopher S. Rugaber
Associated Press, April 2, 2009
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