Although some economists declared the most recent recession over in June 2009, the mortgage crisis, fluctuating gas prices, a shaky stock market and other complex economic issues continue to drag down both the U.S. and global economies. The beginning of 2011, however, has shown market watchers signs of hope. Commercial sales are on the rise and unemployment is somewhat down.
Economists and financial analysts can predict some of these market fluctuations, but the economy is like an incredibly complex machine that's missing the owner's manual. There are so many variables and factors affecting the deeply interconnected web of worldwide economies that even the most experienced economist can only take educated attempts at fiscal prognostication. Instead of reading tea leaves or looking for signs in the stars, we can look for evidence of real economic recovery. Here are 10 signs that the U.S. economy is gaining back the ground it lost during the recession.
Any sales increase is a positive sign for the economy, but sales of high-end equipment are especially important. In the technology sector, large servers and other expensive electronic equipment have increased. The purchase of specialized medical testing equipment by hospitals and labs has also increased from the end of 2010 through early 2011.
These kinds of sales increases are important not only because they show that companies have enough financial confidence to make major purchases, but also because they represent a major increase in overall economic activity. The companies that produce this expensive equipment have new orders that can allow them to expand, or at least rehire workers laid off during the downturn. The purchasers have new revenue streams as more customers use their new equipment.
Where did the data on these increased purchases come from? From the companies likeliest to notice: specialty shipping firms. An MRI machine or a huge generator that maintains power flow to a server farm can't just be loaded into a moving van -- they must be carefully packed and transported by experts to avoid damage. The specialty shipping industry is showing a lot of confidence in large-scale industrial transportation in 2011 [source: PRWeb]. Other reports indicate 0.9 percent growth in the manufacturing of business equipment, computers and semiconductors [source: Chandra & Kowalski].
According to the Brookings Institution, in the third quarter of 2010, housing prices rose in 80 of the 100 largest metropolitan areas in the U.S., and rose 0.6 percent overall among those 100 cities. While the gain is small, it's significant because each of those 100 cities had experienced a decline in housing prices for the previous three quarters [source: Wial & Shearer].
Housing prices are an important indicator of economic recovery in general because, for most Americans, the majority of their wealth is tied to the value of their home. It may be an even more important as a sign of recovery right now because the Great Recession is so closely linked to a collapse in the housing market.
A lot of our economy is tied to advertising. Look at magazines, television, professional sports, local newspapers, Internet sites and the like: We often take for granted that these things are primarily funded by advertising. In 2009, advertising spending in the U.S. fell 7 percent and grew just 1.5 percent in 2010. When advertising spending slows, it cripples a huge chunk of the economy
The advertising industry is not expecting a miraculous turnaround, but analysts predict a 2.5 percent increase in U.S. advertising sales in 2011 -- which is certainly an improvement -- and 9 percent growth through 2013. While it's not spectacular growth, it a whole lot better than a decline [source: McClellan].
Manufacturing makes up roughly 13 percent of the U.S. economy. That's significant, but in some nations, manufacturing represents 20 percent or more of the total gross domestic product (GDP) [source: U.N.]. Gains and losses in manufacturing can often be felt more keenly than even these numbers would suggest, since a shuttered factory can cripple the economy of an entire city or region. Ask the citizens of Detroit.
With that in mind, news that the Ford Motor Company plans to increase factory production by 13 percent in response to a 27 percent increase in the number of individual buyers in January of 2011 is a very good sign for the economy [source: Krisher]. General Motors also reported record profits in 2010 as well [source: Bunkley].The big picture looks rosy as well: In mid-February, the Federal Reserve reported a 0.3 percent increase in U.S. manufacturing output [source: Chandra & Kowalski].
Standard & Poor's 500 Index shows 2010 was the third-best year for corporations since 1998. Even adjusted for inflation, corporate profits were much more robust in 2010 than in 2009, showing a 17 percent increase. This figure excludes financial corporations, who had such a terrible 2009 that they'd make those profits look artificially huge if they were included [source: Shipman & Vigna].
If you believe that vast corporate profits will inevitably "trickle down" to enrich other parts of the U.S. economy, then this is purely good news. While there's plenty of debate over whether corporate profits really do help the economy, they're almost certainly better than large-scale corporate losses.
Eventually, economic downturns make their way to the average spender. Consumer confidence falls as people save more and spend less in fear of even worse times to come. Reduced consumer spending hurts retailers, which hurts retail employees, who represent another big chunk of the economy. So an increase in retail sales is a good sign that the recovery is affecting all levels of the economy.
The good news: the National Retail Federation's 2011 economic forecast predicts a 4 percent increase in retail sales. Retail growth has enjoyed seven months of continual growth, and retailers had a pretty good 2010 holiday shopping season, so things are looking moderately optimistic on that front [source: Grannis].
High unemployment numbers are a sure sign of a terrible economic situation. People who aren't working aren't earning money, producing goods or spending money, and they're likely surviving on government subsidies. It's a good sign that the U.S. Bureau of Labor Statistics reported a decline in unemployment levels in January 2011, dropping to 9 percent from 9.4 percent in December 2010. The February jobs report was even better, with the unemployment rate dropping to 8.9 percent -- the lowest levels in nearly a year [source: CNNMoney.com].
Unfortunately, a different survey, this one by Gallup, indicates an increase in unemployment from 9.8 percent to 10 percent [source: Xuequan]. Gallup uses their own polling methods, separate from the government's statistics.
Is this good news or bad? Well, at least it's close enough for debate. From Oct. 2007 to Jan. 2010 unemployment rose from 4.4 percent to 10.6 percent [source: U.S. Bureau of Labor Statistics]. Whichever numbers you trust, at least things are nowhere near that bad.
The U.S. Department of Labor's January 2011 jobs report wasn't especially exciting. On top of the questionable reduction in unemployment, the U.S. only added 36,000 jobs that month.
This is a positive sign, though -- another case of small gains being a lot better than huge losses. For example, the U.S. economy lost 39,000 jobs in January 2010, and suffered losses in June, July, August and September 2010. Plus, some economists think a wave of serious winter weather hampered job growth in January 2011 [source: Censky]. The February jobs report proved them right, showing a sharp rebound as the unemployment rate dropped to 8.9 percent and the economy added 192,000 jobs [source: Klein].
The U.S. dollar hasn't been this weak in decades. That means that a U.S. dollar is worth less compared to other currencies. In 2002, the cost of one Euro was about 86 cents -- representing a strong dollar [source: Weiner]. Today, that Euro will cost roughly $1.37 [source: Zhou]. In practical terms, that means that things in Europe (or made there) are more expensive for Americans, while American goods are cheaper for Europeans.
A weak dollar has a lot of economic effects, not all of them good. In fact, if you want to start a fight among a group of economists, ask them if a weak dollar is good or bad for the economy.
That said, we're looking for positive signs, and one of the beneficial things about a weak dollar is that it helps American manufacturers. When their products become less expensive for the rest of the world, they can export more goods, boosting sales and their overall bottom line. The influx of foreign money can help fuel economic recovery.
In early 2011, economists noted that the chances of a double-dip recession were slim, and that the economy seemed to be gaining strength on its own merits, not on the back of government stimulus. The majority of economists surveyed felt that, despite weak areas, the U.S. economy was poised for modest growth [source: Izzo].
Why do we care what economists think? With the economy, perception is almost as important as reality. Whether or not someone invests in your business or builds a factory in your country is based largely on how they perceive the strength of your economy. Rosy projections by economists won't fix a troubled economy, but they help encourage investors when the economy is going through a genuine recovery.
What does laissez-faire economics really mean, and how does it work? What did Adam Smith mean when he coined the phrase? HowStuffWorks investigates.
- Censky, Annalyn. "January jobs report disappoints." CnnMoney.com, Feb. 4, 2011. (Accessed Feb. 17, 2011)http://money.cnn.com/2011/02/04/news/economy/january_jobs_report/index.htm
- Chandra, Shobhana and Kowalski, Alex. "U.S. Economy: Production Increases, Housing Stagnates." Bloomberg Business Week, Feb. 16, 2011. (Accessed Feb. 17, 2011)http://www.businessweek.com/news/2011-02-16/u-s-economy-production-increases-housing-stagnates.html
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- McClellan, Steve. "Forecast: Long, Slow U.S. Ad Recovery." AdWeek, Dec. 6, 2010. (Accessed Feb. 16, 2011)http://www.adweek.com/aw/content_display/news/media/e3i5b647315f27310ef7b93cfd95d948a93
- PRWeb. "Hidden Economic Indicators Show Economy Improving." Feb. 11, 2011. (Accessed Feb. 17, 2011)http://www.prweb.com/releases/2011/02/prweb5054374.htm
- Shipman, John and Vigna, Paul. "U.S. Corporate Profits Surge." Wall Street Journal, Jan. 31, 2011. (Accessed Feb. 17, 2011)http://online.wsj.com/article/SB10001424052748703956604576110612955564394.html
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- Weiner, Eric. "Is a Weak Dollar Really So Terrible?" NPR, Oct. 3, 2007. (Accessed Feb. 18, 2011)http://www.npr.org/templates/story/story.php?storyId=14901181
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- Zhou, Wanfeng. "Dollar falls to session lows vs. euro, yen after US auction." Reuters, Feb. 9, 2011. (Accessed Feb. 18, 2011)http://www.reuters.com/article/2011/02/09/markets-forex-dollar-idUSN0921201420110209