A number of economists
predict that the recession could last into 2010 and unemployment will top 10%. If
the crisis does not deepen into an even longer downturn, there will have to be
early signs that the credit crisis is ending and that consumer and business
confidence are coming back, Douglas A.
McIntyre of Time writes.
The author of the article has
pointed out six the most likely signs that the economy has bottomed and is
about to move up.
1. The S&P 500 to trade
flat for three months. While it continues to move down, investors are expecting
two or three more quarters of bad earnings. If it spikes up too early, a rally
probably cannot be sustained. A flat market at least indicates that investors
are becoming more at ease with the economy.
2. Most of the large
manufacturers are experiencing monthly drops of over 45% compared with last
year. It may take a year or more for those numbers to settle at drops of closer
to 10% to 20%. But, if U.S.
vehicle sales stay steady at 25% to 30% down, the consumer is beginning to
tiptoe back into the market. The likely causes for this is that extraordinary
deals on new cars are becoming attractive to buyers who have cut their debt and
can afford to make a modest investment based on very attractive interest rates
helped by capital put into the banks by the government. Low fuel prices will
help that and federal government tax cuts will give consumers a few extra
dollars a month.
3. From a global
perspective, the trading in bonds for developing countries that might default
on their debt, nations such as Ireland
and Ukraine
need to stop changing hands at distressed levels. If the bets on these nations
being able to shoulder that own national financial obligations improve, it is a
sign that global credit is becoming available, at least at the sovereign level,
and that the IMF has been able to get commitments from the "richer"
nations to provide credit to those that are in trouble.
4. China's GDP has
to stop falling and hold at a level of 6% growth. If it drops well below that,
it means that demand for inexpensive manufactured goods in the U.S., U.K., and E.U. has dried up completely.
If China
economic expansion holds, even at levels that are low compared to the last
decade, there is a sign that economic activity in the West still has a pulse.
5. The stimulus package has
to begin to pay off. As its earliest investments go into helping states and
municipalities keep their employees, cuts in place like California have to level off. As money goes
into building the energy grid and broadband makes it into the system, job
creation in those sectors has to measurably increase.
6. Finally, when the
government investment in banks and insurance companies drops below a rate of
$100 billion a month and begins to slow to much more modest levels as the
number of firms that need big bailouts decreases, it means that the period of
huge catastrophes has ended and that normal credit availability from the Fed
has returned as the major method for feeding the credit markets.
