Paul Kasriel and Asha Bangalore of Northern Trust lay out the case that the economy is turning. Highlights of their report (and the full report) are embedded below.
Importantly, Paul and Asha are NOT saying that the economy has “bottomed.” Just that the rate of decline is now decelerating. One of the main causes of this is the tremendous fiscal and monetary stimulus the government is pumping into the system. Paul discussed this in this previous piece, where he noted that it worked in the 1930s (until the government screwed up).
Paul and Asha’s assessment that we’ve past the quarter with the worst decline is consistent with what even bearish economists like Nouriel Roubini believe. Where Nouriel begs to differ is when growth will resume. Paul and Asha’s view, which is in line with the consensus, is that the economy will begin growing again in Q4. Nouriel thinks the economy will shrink 2% in Q4 and struggle all through 2010 (I tend to think he’s right, but the stimulus is a wildcard).
And then there are John Mauldin, Kyle Bass, and others who think that even if the economy stabilizes, it will just collapse again in 2010 and/or move sideways for years–like Japan’s.
Leaving aside the future, here are Kasriel and Bangalore’s key points on what has happened in the past three months that suggest the worst is over. For more detail, read their excellent report, which is embedded below.
The Chicago Fed survey bottomed in January and has turned up since. This survey is generally a good coincident indicator.
Same for the ISM:
And the Philly and Empire State manufacturing surveys:
Next, retail sales are finally growing again, after five quarters of decline:
Car and truck sales turned up in February and March, as did production (below):
As we’ve noted in several recent posts, housing is showing signs of bottoming (not prices, which will likely keep falling for a while, but activity). This is in part due to record housing affordability, although we think this measure is overrated. (It doesn’t much matter whether you can afford a house if you can’t sell the one you’ve got because your equity has disappeared.)
Housing starts appear to be bottoming. (This is actually bad for house prices–the last thing we need is more inventory–but it’s good for the construction industry).
Interest rate spreads are narrowing. This makes buying and building stuff more affordable. First, credit cards:
Then corporate bonds:
And the TED spread, which reflects the rate the biggest banks charge each other for money:
Lastly, in contrast to the big disasters of the 1930s and early 1970s, the money supply is growing:
Why is all this stuff important? Read Paul and Asha’s excellent report below. And check out the Northern Trust web site, where the firm generously makes Paul and Asha’s ongoing commentary available: