Analyst Who Called Recession End Sees Durable Rebound

Economist Thomas Lam accurately predicted the official end of the recession a year and a half ago, and now he is offering his opinion on economic recovery. He predicts that we will see the economy rebound, with less than a 20% chance of a renewed slump.

Bloomberg.com reports:

“The main risk to the U.S. economy today is really a prolonged period of mild growth rather than an imminent recession,” said Lam, the Singapore-based chief economist at OSK-DMG, a joint venture between Malaysian securities firm OSK Holdings Bhd. and Frankfurt-based Deutsche Bank AG.

Lam’s May 2009 call that the U.S. would emerge from recession the following month -- confirmed this week by the National Bureau of Economic Research -- drew “quite a bit of heat because it was a time when things were still uncertain,” the 35-year-old analyst said in a telephone interview with Bloomberg News today. “Some thought the call too optimistic.”

Lam, who published his prediction while working for his previous employer, United Overseas Bank Ltd., studied peaks in the number of U.S. jobless claims using a proprietary weighted- average formula to remove statistical “noise,” and found a correlation with economic turning points.

“The model actually predicted it would be 394 weeks from the prior trough in November 2001” before the economy would begin growing again, Lam said. “It was actually 395 weeks.”

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Loan Picture Improves but Troubles Remain: FDIC

For the first time in four years, loans that are 90 days or more past due have decreased instead of increased. While this is no doubt a good sign for the housing industry, it comes just days after the National Association of Realtors reported a record 27% drop home sales.

According to Reuters the Federal Deposit Insurance Corp earned $21.6 billion during the quarter largely due to banks putting away less money to cover expected loan losses.

During the first quarter, the industry earned $17.8 billion.

In other signs of improvement, the total assets of banks characterized as "problem" institutions fell during the quarter to $403 billion from $431 billion, and the FDIC's insurance fund increased by $5.5 billion during the quarter.

But there are still troubling indicators.

Loan balances continued to decline during the second quarter, with net loan and lease balances declining by 1.3 percent. Loans to small businesses and farms -- a major focus of the Obama administration -- fell by 1.8 percent during the quarter.

Job Picture: Signs of Improvement

New reports have emerged showing a slight improvement in the country’s job loss problem. According to Automatic Data Processing – a payroll-processing firm – private job losses totaled 169,000 in November. This represents the eighth month in a row that job losses have fallen from the month before according to CNN.

"Looking forward, we expect several months of declines," said Joel Prakken, chairman of Macroeconomic Advisers, in a conference call. "But the losses will get smaller and we should see the first positive number in February's data."

The U.S. economy will not return to "full employment," defined as 5% unemployment, until as late as 2014, Prakken said.

Prakken also addressed the jobs forum slated for Thursday, in which President Obama will meet with labor representatives, financial experts and other business leaders to discuss the continued problems with unemployment.

"There are two ways you can go: hope more government spending translates to employment, or give tax incentives for hiring," Prakken said.

Both options are tricky, Prakken said, and "he's not a huge fan" of either avenue because to improve the labor market most of the hiring will have to be in the private sector.

Three Signs that the Economy Could be Poised to Boom

Every day there are new reports predicting how long the recession will last. Some assert that unemployment rates will continue to increase and that we have not yet seen the worst of the housing market crash. However, Peter Cohan of DailyFinance has put together a great upbeat blog entry explaining three signs that the economy could be poised to boom. Check out his informative post below.

Being optimistic by nature, I like to look for good news. So, a handful of recent articles on the economy struck me as a possible harbinger of good times ahead. These reports suggest that consumers and businesses are wising up by borrowing less, living within their means, and -- in the case of a lucky handful of companies -- piling billions of cash onto their balance sheets through initial public offerings. These developments could be laying the groundwork for an economic recovery.

Since 70 percent of GDP growth comes from consumer spending, the reports that consumer spending and borrowing are down clearly suggest short-term bad news. On Oct. 7, AP reported that more people are using food stamps and that more are cooking at home instead of going out to restaurants. With 15.1 million unemployed, this doesn't come as a big surprise.

Nor does news that consumers are borrowing less. Also on Oct. 7, the Federal Reserve reported that consumer debt outstanding fell in August at a 5.8 percent annual rate by $12 billion -- $2 billion more than Wall Street economists expected. Credit-card debt fell by 13.1 percent -- which is why, without cash-for-clunkers, it's unlikely that consumer spending will continue to grow at August's 1.3 percent rise. Indeed, the National Retail Foundation thinks 2009 retail sales will fall 3 percent.

Intriguingly, while consumers are re-equitizing their balance sheets, some companies are adding billions in equity to theirs. AP reports that just yesterday, two companies raised $10 billion in the IPO market -- more than 10 times the $917 million raised in IPOs during 2008's third quarter. Both were well-established companies: Banco Santander Brasil SA pulled in $8.1 billion, while Verisk Analytics (VRSK) -- a company I consulted to in 2002 -- raised $1.9 billion from investors.