How you'll know the economy is turning around
Experts watch a variety of indicators both subtle and significant – from the sale of home hair-dye kits to the volume of used-car purchases.
Purchases of big-ticket consumer items like cars and washers, trends in the stock market, and manufacturers' inventories are a few of the "leading indicators" that economists watch for signs of an economic upturn – most of which remain gloomy. But every economist has a favorite benchmark. Here are a few – both subtle and significant – we encountered in a survey of experts.Skip to next paragraph
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Home hair-dye kits
When people are curtailing spending, they color their hair at home and forgo trips to the salon. Procter & Gamble reports that sales of its home hair-dye products have been surging.
Consumers still aren't buying new ottomans, Mission-style coffee tables, and other furniture in great numbers, indicating an enduring softness in consumer spending. National home furniture sales in February ticked up a modest $100 million over January, to $8.5 billion.
A return to housing growth would be one of the strongest signals that the worst is over. Construction of new homes and apartments jumped 22 percent in February over January, though that's still 47 percent below a year ago. More telling, building permits applications rose 3 percent. Still, the National Association of Home Builders' housing market index was at nine in March – one point above the all-time low. Is the bottom near? Maybe.
Trips to the corner coffee boutique, another sign of consumer sentiment, continue to fall. Sales at US stores dropped 10 percent in the first quarter of 2009 over a year ago.
When sales of used cars start to slow, it often means people are considering buying new vehicles again – a good sign. For now, "pre-owned" sales remain robust: Analysts at Edmunds.com indicated in mid-February that some 511,000 used cars sold in the previous three months would have been new car sales in a "normal" economy.
Eating and drinking at restaurants, a key indictor of consumer confidence, has not yet resumed its historical growth pattern. Still, the $38.6 billion spent in February is higher than the same month a year ago.
Lloyd Henry of Ohio-based Hudson Economics says that US stone sales – granite, marble, and limestone – for both commercial and residential use were off 25 percent in 2008 over 2007 levels. But he says those figures aren't "bad" compared with those of some other high-end items.
The Dow and S&P 500 will need to notch consecutive positive months, and sustain the gains, to convince analysts that it has begun reversing the roughly 50 percent drops of the past year. A modest rise in March buoyed confidence, but some analysts think the market isn't on a definitive upward trajectory yet.
Revenues for the shipping company, an indicator of business activity, rose a slender 1 percent in the most recent quarter. In the same quarter in 2006, by comparison, sales were up 10 percent over 2005.
Conference Board index
The group's widely watched 10 indicators – which range from manufacturers' orders to jobless claims to the money supply – need to move up for several consecutive months on the strength of consumer spending and industrial output to convince many analysts that the recovery is starting. Half of these categories are now positive.