Sweet Orange

NEW YORK, August 20, 2009…The Conference Board Leading Economic Index^TM (LEI) for the U.S. increased 0.6 percent in July, following a 0.8 percent gain in June, and a 1.2 percent rise in May.

Says Ken Goldstein, Economist at The Conference Board: “The indicators suggest that the recession is bottoming out, and that economic activity will likely begin recovering soon. The Coincident Economic Index was flat in July - the first time it did not register a decline since October 2008. The Leading Economic Index, which has increased for four consecutive months, suggests that the CEI will turn positive soon.”

In a recent post, I wrote that Chris Thornberg, principal with Beacon Economics, see improvement in construction, finance, and retail not occurring until sometime after the recovery is underway. In other words, they are lagging indicators. The employment numbers are another indicator that Thornberg see  as a lagging indicator in this recovery. Lagging and leading indicators are not the same in every recession. However, improvement in the employment numbers is seen by most economist as a indicator that lags in most recessions.

As I wrote previously, Peter Orszag, Director of the Office of Management and Budget, agrees that improvement in the employment numbers is a lagging indicator in recessions, including this one. However, he sees the current unemployment numbers as 1.5% higher than is normal for this stage of recession. He sees two reasons for this.

First, the losses in stocks and, therefore, the reduced amount in retirement accounts is making it necessary for many to delay retirement. Previously, pensions, not stock numbers, determined the amount in a retirement account. So the ups and downs of the stock market have a bigger role in this recession. Second, he says the fall in home prices to below the amount owed makes it difficult for many unemployed to relocate to other areas to accept a job offer. This has not been true in other recent downturns.

After a slight downturn in July, the U.S. unemployment number rose in August to 9.7%.  In a few weeks, the California and Orange County numbers will come out. For now, here is a look at the July and June unemployment numbers:

• U.S–July: 9.4% (June: 9.5%)
• California–July: 11.9% (June: 11.6%)
• Orange County–July: 9.5% (Jun: 9.3%)

For more information on why unemployment remains high, see “Why is U.S. Unemployment so High?“. Also see, “The Conference Board’s August 2009 Global Business Cycle Indicators” and Unemployment in O.C., state buck U.S. trend.”

Note: For Beacon’s economic forecast, see Beaconomics.

GRAPH COURTESY WIKIPEDIA

Well, we had stimulus spending and some say that we are starting to see an economic recovery. However, others are questioning this since unemployment is still so high. Peter Orszag, Director of the Office of Management and Budget, explained it this way during a Charlie Rose interview.

Orszag stated that he sees the economy as improving but the unemployment rate will remain high for some time to come. This is in accord with most economists’ belief  that employment is a lagging indicator in a recovering economy–the stock market might go up, businesses may see improvement, but hiring is put off until the recovery has long been underway.

However, Orszag said that the current unemployment rate is 1.5% higher than would be expected in a more traditional recession. He listed two factors for this: First, pensions are largely a thing of the past; more U.S. citizens now depend on a 401K for their retirement. However, with the fall of the stock market, the amount in 401Ks has decreased drastically, and many, by necessity, are postponing retirement and staying in the workforce.

Second, in past recessions, many moved to other locations to accept a job offer. However, this time around, plunging house prices make it difficult for homeowners to sell their homes and seek employment elsewhere. The result is that fewer of the unemployed see moving as an option in this recession than in past recessions.

Orszag also said that without the stimulus spending the economy and the job situation would be worst than it is now and that the affect of stimulus spending was designed to reach a peak at the end of this year and early 2010.