Unfortunately the community here lost one of it's great (and preeminent) economic writers (hopefully just temporarily) over the economic debate between recovery and further collapse. In light of that great debate, I thought I would highlight some of the more important data that everyone can follow to see if we will see a nice recovery (even if it is slow) or whether we we slip back into recession/stagnation (it is very likely that the technical recession will be dated to end sometime in Q3 of this year regardless of our opinions).
First, let's look at a couple of traditional economy killers that may rear their heads at some point during any potential recovery and what effect they may have if we see them:
- Oil - Oil is still hovering in the low $70's even in the face of reduced US demand and very high inventories, which gives me reason to fear an explosion to the upside on any signs of real growth in demand. It is quite likely that a price north of $100/barrel (some say $80) will severely hamper our ability to grow/recover and would likely push GDP to at best flat line.
2)Interest Rates - Currently, interest rates (I am not talking the fed funds rate here, but medium-long term treasuries) are very low and thus are helping to push up growth (cheaper to borrow). Should investors become concerned about inflation (the ability of the US to pay these debts off with current dollars) treasuries would likely rise substantially and could easily kill off a recovery, especially in areas like home and auto sales. Higher interest rates would also put our government in a bind, as they would mean greater debt service costs with a likelihood of reduced revenue at the same time. The key rates to watch are the 10 and 30 year treasuries.
Next, we turn our eyes towards the consumer. Consumption is a huge part of our economy (at the height of the last expansion consumption was 70% of the economy) and thus what the US consumer is doing will be very important towards determining the staying power and strength of any recovery. Here are a few metrics to watch:
- Savings Rate - Go here for the data. Then look for the bold heading "personal saving as a percentage of disposable income". You can see by the current data that the savings rate has been rising rapidly of late, but is still nowhere near what it averaged during the 80's (or 70's and 60's for that matter). This number is an important one to follow, as its continued rise will hamper any recovery since it means the consumer simply isn't living up to their name. Even a stabilization at a 5% level likely will bode for a slow recovery, since our economy has been set up to run with savings rates below 3% of late. It is simply very difficult for a recovery to gain traction without consumption, so a sustained drop in the savings rate would be a good thing for a recovery.
- Personal Income - From the same table as above, look at the line near the top that reads "compensation of employees, received". This number has fallen recently and will need to pick up in order for a recovery to gain traction. A large rise in this number can also make up for an increase in the savings rate if the net gain in compensation is greater than the increased saving would take away.
- Auto Sales - Sales Data. Click on the link to "New Vehicle Sales" to open a spreadsheet with the latest month's results by brand and a comparison to last year. The important numbers to watch are the monthly totals/comparisons, as the year to date data is too "outdated". Also note on the site the SAAR (seasonally adjusted annual rate) link (another spreadsheet), as this will give you an idea of where we stand on car sales (although cash for clunkers is going to really skew this by moving a ton of sales into August). Look for consistent positive year on year comparisons and a sustained SAAR north of 12.5 million vehicles for a recovery, with less than that likely meaning stagnation (again, wait for the September/October numbers to come out to see what impact C4C had).
- Retail Sales - Link to retail sales data. Obviously here you want to look for growth with a highlight towards year on year growth (ie July 08 vs July 09) due to seasonality differences. The month to month data can also be useful, as a trend of consistently higher month to month comparisons will likely turn higher before the year over year data. Keep in mind that this is nominal data (ie not inflation adjusted) and that 2008 wasn't exactly a good year to begin with.
Finally, we have the employment situation. Here a are a few more stats to keep on eye on when trying to determine if a recovery is nigh.
- Employment Situation - This is the mother of all the employment news and is released at 8:30am on the first Friday of every month (the next report will be released on the 4th of September). You can find the various links here. Or you can go to the BLS website on the day of the release for a link. The Employment Situation Summary will summarize (how nice) the data, but you want to pay particular attention to Table A-12, which will provide the alternative measures of unemployment including the much more inclusive U-6. Also pay attention to Table A-1, which will give you the Labor Participation Rate and Employment-Population Ratio. A shrinking labor participation rate can lower the unemployment rate even if jobs are lost because it acts as the denominator in the calculation. The employment-population ration gives an idea of what percent of working age people are actually working. Things to look for here that would point to a recovery include: monthly job gains (instead of losses), an increasing employment-population ratio, a shrinking gap between U-3 and U-6, and of course a consistent drop in the unemployment rate. Please note that the unemployment rate has nothing at all to do (data wise) with unemployment insurance/claims. Finally, keep an eye of the Birth/Death Adjustments, as they can greatly skew the job creation/loss estimates for a given month.
- Unemployment Claims - This is a series of weekly data that track actual claims for unemployment insurance and will also track the total continuing claims amongst other related data. You can find all this information here. A few points to watch here are the 4-week moving average, as a consistent drop to below the 400,000 level is typically a sign of coming job creation and the data on "persons unemployed 27 weeks or more", as this will give an idea towards our overall economic health, as those whose benefits expire are very likely to drastically cut back on expenditures.
While there is a lot more data out there that I watch regularly, this collection should be a very good start for anyone who wants to take a more dispassionate look at the current/future state of our economy.