Wednesday, September 08, 2010

5 Positive Signs of Economic Recovery

Since the banking crisis and housing collapse, the U.S. economy has showed little significant signs of improvement. Many economists have even warned of a looming double dip recession. However, the month of September has started off with a couple of reports suggesting that the economy is still improving, although not nearly as quickly as one would hope.

Consumer Confidence

Over the summer there have been a couple of signs signaling an increase in consumer confidence. Specifically, there was a 0.4% rise in consumer spending in July. This number goes hand in hand with the 0.3% salary increase from the same month, which followed a 0.1% drop in June. Although these are relatively small increases, and consumer confidence and spending are not at an all time high, experts suggest that consumer spending accounts for nearly two-thirds of U.S. economic activity. Therefore, even slight gains are a good sign for the overall economy.

Saving Activities

During the majority of 2009, and the first few months of 2010, consumer spending was disappointing because Americans were putting more of their money into savings. At the beginning of the recession in 2008 the savings rate – or percentage of disposable income that is not spent on goods or services for individual consumption – was only at 2.7%. In June the savings rate was up to 6.2%, but it dropped to 5.9% in July. This data, along with the numbers showing increased consumer confidence suggests that spending will continue to increase with incomes.

Loan Defaults

According to the Federal Deposit Insurance Corporation, loan recovery has actually showed slight signs of improvement this summer. The total number of loans in the United States with past due amounts of 90 days or more have decreased to the lowest level in four years. Overall loan balances have also been on the decline. Some economists suggest that these improvements are a result of the Wall Street Reform bill that tightened lending laws and forced banks to cut down on risky loans. For more information on the reform legislation, check out this article I posted last month.

Divorce and Birth Rates

Another interesting gauge of the economy is the number of divorces and childbirths in the country. Getting a divorce is expensive and time consuming. Therefore some couples have been forced to hold off on filing for divorce due to financial limitations. Over the past few years divorce rates have been declining, but so far in 2010 the rates have increased. This may not seem like a significant sign of economic improvement, but it does show that unhappy couples are willing to spend more than they had been in 2009 or 2008. Additionally, the number of families who had a new child increased this year. We had seen the largest decline in births since the Great Depression as families held off on having children because of the expense. However, these numbers are finally starting to improve.

Stock Market

One of the most accurate indicators of economic strength is the stock market. Although the stock market saw a temporary slump in August, when the Standard & Poor’s 500 Index lost 4.7%, this month has been off to a good start. On the first day of September the Down Jones jumped 255 points. Many experts attribute the rise to better than expected manufacturing growth in both the U.S. and China. Other international reports also had an impact on the stock market, such as the announcement from Australia that their economy grew at the fastest pace in three years.

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