Recent reports of improvements in the manufacturing sector and increases in consumer spending have economists believing that "the worst is over."
Economists continue to claim they see signs of recovery from the recession that officially began December 2007. For one, the latest Institute of Supply Management (ISM) survey shows "significant improvement" for the month of April. The Purchasing Managers' Index (PMI) went up 3.8 percent from 36.3 percent in March to 40.1 percent last month.
Although this is the 15th consecutive month that the manufacturing sector failed to grow and the seventh consecutive month that the overall economy contracted, the decline is moderating as the PMI has been inching closer to the 50-percent mark for the fourth consecutive month, the ISM Report on Business® notes. A reading above 50 percent indicates that the manufacturing economy is generally expanding.
"After six consecutive months below the 40-percent mark, the PMI, driven by the New Orders Index at 47.2 percent, shows a significant improvement," according to Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee. "While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again."
The only manufacturing industry to report growth last month was miscellaneous manufacturing. Still, new orders shot up 6 percent from 41.2 percent to 47.2 percent in April; production went from 36.4 percent to 40.4 percent; and employment climbed 6.3 percent from 28.1 percent in March to 34.4 percent in April.
"This is the first report we've seen in quite some time we can call very encouraging," Ore told Bloomberg News. "It certainly looks like the worst is over."
Other economic experts agree but add that more bad news will continue in the short run and that growth is not expected any time soon.
"We need to view the move with caution," wrote Merrill Lynch economists Drew Matus and David Rosenberg (via MarketWatch). "The uncertainty surrounding the auto sector seems likely to crimp activity and could drive this series sharply lower in the near term."
Still copper prices, "one of the most economically sensitive commodities," Ore said, rose for the second straight month. "This is definitely a good start for the second quarter," he adds.
Additionally, the Reuters/University of Michigan index of consumer sentiment jumped to 65.1 in April, the most in more than two years, Bloomberg News reports. Consumer spending rose at a 2.2 percent pace last quarter, but economists surveyed by Bloomberg believe spending will slump again in this quarter before picking up in the latter half of the year.
Addressing the Joint Economic Committee today, Federal Reserve Chairman Ben Bernanke explained that a number of factors, such as the weak labor market, declines in equity and tight credit, will continue to weigh on consumer spending. However, household spending will be boosted by the fiscal stimulus program.
"We continue to expect economic activity to bottom out, then to turn up later this year," Bernanke added.
While many other analysts expect economic recovery to happen later this year, some are even going so far as to claim the recession will end later this month.
Brian S. Wesbury and Robert Stein at First Trust Advisors expect the recession - which they say began September 2008 - to end this month.
In their Forbes column, they cited the recent upturn in manufacturing activity, consumer confidence and spending, coupled with the supposed bottoming out of housing prices and commodity prices as signs of the recession losing steam.
"The end of the recession does not mean we won't lose more jobs; employment is always a lagging indicator. And there will be more defaults, foreclosures and financial market problems too. But none of these are leading indicators," Wesbury and Stein wrote. "In our view, there are no more shoes to drop."
Are we nearing a downturn turnaround? Or are these isolated signs in a recession that will last for years? Let us know.
Date: May 5, 2009
Source: Jorina Fontelera, Thomas Publishing Company LLC - www.thomasnet.com