Five Reasons to Start Feeling Optimistic (Maybe)
LOS ANGELES (AdAge.com) -- The end is near.
Economists bet GDP growth will turn positive in the third quarter, which begins in just seven weeks. Consensus is for tepid 0.4% annualized growth in the third quarter, followed by 1.5% growth in the fourth quarter.
The National Bureau of Economic Research, arbiters of business-cycle dates, won't make a ruling on the end of the recession until recovery figures are conclusive. So even in the most optimistic view, any pronouncement on the end to the longest recession since the Great Depression won't come until sometime in 2010 at the earliest.
But there's a good case for feeling optimistic. Five reasons why the glass is more than half full:
1. CONSUMER CONFIDENCEThe Reuters/University of Michigan index of consumer sentiment in April showed its biggest increase in more than two years, continuing to recover after slumping to a three-decade low in November. The index of consumer expectations -- an indicator of future consumer spending -- jumped sharply in April.
First-quarter consumer spending increased 2.2%, a better-than-expected rebound after spending fell off a cliff in the fourth quarter. Retailers including Walmart Stores posted improved results in April. Walmart saw a 5% boost in April sales (excluding gasoline) at U.S. stores open at least a year. Economists expect consumer spending to pick up somewhat in the second half, helping flip GDP from negative to positive.
2. ADVERTISINGThe once seemingly recession-resistant household and personal-care industry has been engaged in a surprising race to cut marketing spending of late, with its measured media spending falling faster than the rest of the marketing world in 2008.
But that trend could be reversing. Unilever CEO Paul Polman said on an earnings conference call May 7 that the company will step up spending through the rest of the year behind new-product launches.
In a note May 8, Deutsche Bank analyst William Schmitz said a meeting last week with Procter & Gamble Co. Chairman-CEO A.G. Lafley further convinced him the company will make fiscal 2010, which starts in July, "an investment year," pulling back on earnings targets in order to spend more on marketing and innovation for the long term.
Commodity and currency pressures on U.S.-based package-goods companies are likely to ease over the back half of the year, possibly opening budgets for more marketing spend.
3. JOBSThe economy lost only 539,000 jobs in April. Only half a million? Well, that was the smallest loss in six months. Government hiring for temporary census jobs gave figures a boost, but private-sector employment also showed improvement. Still, the unemployment rate rose to 8.9% in April from 8.5% in March.
Economists expect the U.S. job market to remain weak and for the unemployment rate to grow, even after the economy bottoms.
However, the pace of job cuts is slowing, and that's a start. Nigel Gault, chief U.S. economist at IHS Global Insight, said: "The labor market is still deteriorating, but the rate of decline is moderating. ... There is light at the end of the tunnel, and it is getting brighter."
4. STOCK MARKETThe Dow closed last week at 8,575, up a remarkable 33% from its recession low in March (6,470). The stock index, to be sure, is still more than 5,000 points below its all-time high (14,198) in 2007. But the panic is over. Investors are betting that the worst is behind us and that recession will give way to at least a slow recovery.
5. REAL ESTATEThe housing market's free-fall appears to be ending, with signs of hope in both home resales and construction. Pending sales of existing homes increased in February and March, according to the National Association of Realtors.
Said Mr. Gault: "Most key indicators of housing activity -- home sales, housing starts and permits -- are showing signs of stabilization, based upon dramatically improved affordability -- for those who can qualify for credit."