Economics: How Will We Know When the Recovery is Coming?

Early this decade, when the United States was coming out of its previous economic downturn, a story in our BizVoice magazine featured comments from several state economists. The basic question: What are the leading indicators of an economic recovery?

The answers then varied widely, as they undoubtedly would today. The editors at The Kiplinger Letter say they will be keeping a close watch on four areas:

  • Stocks: According to the editors, stocks, over the past 70 years, have started rising, on average, four months before gross domestic product turned positive.
  • Jobless claims: An encouraging sign will be when the first-time unemployment applications decrease from 550,000 per week to around 400,000.
  • Bond rates: The current 17 percentage point gap between interest rates on low-grade corporate bonds and Treasuries will continue to shut those with less than stellar credit records out of the bond market. The normal gap, they say, is closer to five points.
  • Housing starts: Stable prices are necessary to stop housing’s "negative contribution to GDP growth."

Agree? Disagree? Have your own indicators to watch?