The Tipping Point

Economic data of late are looking hopeful. Have you noticed the good news? Let's take a look at what has been reported.

Builders are getting back to work, as we see in Phoenix.


Single-family housing starts have increased for the last four months in a row. This is the first four consecutive month increase for single-family starts in four years.

According to my favorite economist, Brian Wesbury, We are now witnessing the long-awaited end of the bust in home building and the birth of what will be a substantial recovery in residential construction over the next few years.

He further says, Most areas around the country should see some price increases by year end. Home construction is going to increase substantially over the next few years. Although there are still excess inventories in the housing market (roughly 1.5 to 2 million homes), the rate of home building got so low that inventories can continue to fall rapidly even as building activity recovers.


It would appear that we have finally seen the bottom in the housing construction market.


The number of US workers claiming unemployment benefits have fallen from their peak in January.


Corporate layoffs have dropped 70% from their peak late last year. Now with business downsizing nearly finished, companies are poised for higher productivity and efficient growth.


The Economic Cycle Research Institute (ECRI) reports its gauge of future U.S. economic growth edged higher suggesting a near-term end to the recession.

ECRI Managing Director Lakshman Achuthan states that, It is increasingly evident that, despite widespread misgivings based on backward-looking economic data, the end of recession is at hand.


Let's wrap this good news up by looking in the rear-view mirror. We again recognize that this was not "your grandfather's Great Depression II."

I am especially thankful for Fed Chairman Ben Bernanke's quick action last September that helped us overcome a much more significant decline in US Gross Domestic Product (GDP).


This past week we received a report on GDP in the second quarter. It was down 1%--less than most economists expected. The healing of the US economy continues--consistent with a V-shaped recovery, as we've talked about in prior blogs.


Astute readers will recall that a significant slowdown in the velocity of money was a major factor in this recession. That's why action by Fed Chairman Bernanke was so critical last September, and in following months.

That velocity appears to be picking up, as you can see evidence from the following graph. This is the ratio of GDP and a measure of the US money supply (M2). Money that people have been hoarding is starting to be spent.



Post script: Recovery from a recession is not the same as return to normal rates of employment. Typically, a recession ends and job growth significantly trails resumed GDP growth.

I believe this time that job recovery is going to take even longer than usual, notwithstanding some favorable unemployment claim statistics which I shared with you.