We just had a recession that lasted from fall 2007 until summer 2009. That’s rather long for a U.S. recession. But, notice I did use past tense. The recession is over.
How can we tell if it’s really over and the economy has bottomed out? There are a couple of easy-to-understand economic statistics you can follow that will help you track the economy.
The most important guide to our economic health is consumer confidence. The Conference Board puts out a consumer confidence index each month. You can watch for it in the news or Google it on the Web. It started to decline in the summer of 2007, warning anybody who was paying attention about what was coming.
When consumers worry about their jobs and futures, they’re more likely to save and less likely to spend money. When consumers don’t spend, the economy shrinks, and we get a recession. Consumer confidence has bounced back from its lows of last summer, but is still a long way from where it needs to be for a healthy recovery.
The next thing to watch is manufacturing. U.S. manufacturing has actually expanded for seven straight months (meaning we are making more stuff). This is a very good sign that means businesses think we’re about to resume buying things and are restocking their inventories. If they are right, the recovery finally is about to pick up some steam.
The third economic statistic to track is employment. You can watch unemployment, too, if you want, but employment is a better guide, albeit harder to find. For example, Georgia’s unemployment rate went up .1 percent in February. That sounds bad but employment actually increased by 10,000 jobs. That’s a good sign.
How do those go together? It’s simple. Because 10,000 more people are working in Georgia, people without jobs are feeling a little hope and beginning to search for jobs. If you’re out of work, but not looking for work, you don’t count as unemployed. So, when things get better, unemployment usually briefly rises as job seekers renew their efforts.
Employment is a better guide in these early stages of a recovery.
Finally, watch housing inventories. You can find data on the number of months of supply of homes (total homes for sale divided by the number sold last month). If this number is dropping, the real estate market is improving and home prices should start to increase again. In fact, home prices have already risen 4 percent from their May 2009 low. A normal number is 6 to 8 months of supply. In many counties, we are back to that number or close to it.
There you go. Four things you can watch to confirm that things are no longer getting worse.
Taken together, these four measures and other economic statistics tell a story of an economy that has hit bottom and is beginning to climb out of the recession. The recession is over.
Still, the recession being over just means we bottomed out, not that we’ve made any progress in getting better. There are things that will remain bad through the early part of the recovery. Since we’re starting from such a low point, it will take some hard climbing to feel better.
(Jeffrey Dorfman is an economist with the University of Georgia College of Agricultural and Environmental Sciences. This is part two of a three-part series titled “Rising from the Recession.” In part three of the series, Dorfman looks to the future.)