As we enter into the second quarter of 2009, still grappling with this economic swoon, the timing of the ensuing recovery is a very relevant topic. While negative economic news is still available in abundance, there are small glimmers of hope in the form of positive developments on some fronts. Whether these constitute tentative signs of a nascent recovery is a million dollar question. I plan to track various economic indicators and try to solve this puzzle in the coming months, in a manner that is both informative and easily understandable to the readers of this blog.

At the national level, the Beige Book, released in March 2009 by the Federal Reserve Bank, reported weaker economic conditions during the period January through late February 2009. According to the report, consumer spending was sluggish although some districts reported improvement over a dismal holiday spending season. As can be expected in these tough times, sectors dependent on discretionary spending including travel and tourism, luxury goods, new cars, restaurants and health care services relating to elective procedures preformed poorly. The general decline in overall demand also adversely affected the performance of sectors like manufacturing, extraction of natural resources, commercial real estate, professional services, staffing services and shipping and transportation. Only defensive industries, whose profits are not particularly sensitive to the growth level in the economy, such as basic food production and pharmaceuticals managed to advance in the economic climate. Sales of used vehicles fared better than new vehicles, which reflect the uncertainty clouding consumer confidence levels.

According to the Bureau of Labor Statistics, national unemployment rose from 7.6% in January to 8.1% in February, and rose further up to 8.5% in March 2009. The western region posted the highest regional jobless rate at 9.2% in February. Seven states in the country had double digit unemployment rates in February 2009, with Michigan reporting the highest rate at 12%. Fourteen metropolitan areas reported unemployment rates of more than 15% in February 2009, while 104 metropolitan areas reported jobless rates of at least 10%. Arizona’s unemployment rate increased from 7% in January to 7.4% in February 2009. The corresponding unemployment rate for Arizona in February 2008 was a much lower 4.5%. Over the year the state has shed approximately 178,100 jobs. The Phoenix-Mesa-Scottsdale, AZ metro area has recorded an over the year job decreases in non-farm payrolls of 137,600. However, it bears mentioning that unemployment rates are usually lagging economic indicators. That is, in a business cycle unemployment tends to rise as businesses become leaner and more efficient and continues to rise even after the economy has bottomed out and started to recover.

Layoffs and hiring freezes that have led to unemployment have also reduced or eliminated upward wage pressures. This has led to low levels of inflation, which has also been tempered due to weak demand, price discounting and lower prices for energy and raw materials. Seasonally adjusted CPI for All Urban Consumers (CPI-U) rose by 0.4% in February. This slight increase after a stable or declining trend between August and December 2008 has been attributed to an increase in the overall energy index by 3.3% and the gasoline index by 8.3%. However, compared to the July 2008 peak, the energy and gasoline index were lower by 29.2% and 44%, respectively.

At the manufacturing level, seasonally adjusted Producer Price Index (PPI) for finished goods, intermediate goods and crude goods changed in February 2009 by 0.1%, -0.9% and -4.5% respectively. PPI for finished consumer foods actually fell by 1.6%, while finished energy goods rose by 1.3%. In contrast, PPI for crude energy goods fell by 8.5% in February 2009, reflecting a trend of weaker demand due to lower manufacturing activity.

Srividya Subramanyam