Within the Current Context, Mixed News is Very Good News

How do we know when recessions are ending? What are the signposts? When do we definitively know that things have turned around?

It is generally after the fact that analysts can judge that the corner has been turned. Assessments are based on data that is often several weeks or even months out of date. Gross Domestic Product (GDP) numbers are measurements of past activity levels.

To this point in the cycle, and certainly with respect to the United States’ economy, almost all of the economic news over the past year and a half has been bad. What should be expected next is a period of mixed economic news. This would be a very positive development.

The Signposts are Never Clear-cut

The indications of a turnaround are never clear-cut. What happens at the bottom of a cycle is a lot of “muck.” The news becomes mixed. Today’s key indicator will show an improvement; tomorrow’s will point to continuing deterioration. This can go on for an extended period of time − sometimes as long as six months or a year; sometimes longer.

Variable news, while it may be frustrating, is a whole lot better than nothing but bad news. The bottom is always murky and unclear. Lots of people, analysts and “average” citizens alike, are confused about what is really going on. Swimming in any one direction becomes a matter of faith. Just the same, it is quite a different sensation than a steep dive.

Why Talk about This Now?

Why talk about this now? Because the economic news is starting to become more mixed. U.S. housing starts had a substantial pickup in February. It may have had something to do with milder weather and it may or may not be sustainable. Nevertheless, it was a gain after many months of nothing but declines and one is increasingly alert to good news.

Oil prices are gradually creeping higher. This may mean some improvement in the prospects for world trade, starting with China. By decree, the Chinese government has encouraged banks to increase their lending as a means to stimulate the domestic economy. This is on top of the infrastructure spending that is already on the books for that nation.

Infrastructure work is also gradually being released in the U.S. and Canada. Interest rates are about as low as they are ever going to go. This is causing a pickup in first-time homebuying demand. The Canadian dollar has firmed up with the increase in oil prices.

Suncor’s pursuit of Petrocan indicates more optimism in the future of the oil patch than has been apparent since the collapse of equity prices last fall. That is another area of some recovery. Stock prices have staggered out of their death beds, led by the financials, as Timothy Geithner’s plans for distressed U.S. banks are meeting with some approval.

In Summary

Don’t look for flashy neon signs saying, “Road to Recovery”. Expect the path ahead to include a lot of detours. Celebrate uncertainty and take pleasure in the sheer joy of the drive. It’s better than sitting in your car by the side of the road with the wheels off.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

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