More signs of economic improvement

While it's impossible for anyone to forecast when we'll reach the bottom of the recession, I am seeing signs indicating that we may be near the bottom.  Today's report from the Institute of Supply Management (ISM) tells us the following:

  • Orders for new manufacturing supplies increased 3.9% in May, the first monthly increase since November 2007.
  • Manufacturing inventories are the lowest siince 1982.  Manufacturers have been reducing inventory to preserve cash, but the fact that new orders increased in last month, it may be an early signal manufacturing production will see an increase in upcoming months.

In addition to economic data, I have my own informal survey I conduct with business owners.  I find the collective insights from small business owners can be helpful. Here's what they tell me:

  • An executive in a company that manufactures components for electronic devices told me revenue has stopped declining in the past two months.  They are cautious about upcoming months, but relieved that revenue has stabilized for now.
  • An executive in a niche health care services company told me that business had been steady throughout the recession.  They saw a downturn in February and March and April were very soft.  However, the last two weeks in May saw a significant increase in business.
  • Earlier this year my local dry cleaner said business was down because people were bringing in less laundry (not dry cleaning).  Today they told me May was very strong for them.

Jeff Immelt, CEO of General Electric, last week declared "The worst is over," for the economic downturn because global capital markets have improved "dramatically."

The stock market is a leading indicator of economic health, and May's gain of 5.59% (S&P 500 TR) on top of April's 9.57% rise may be Wall Street's expectation of a turnaround.

Unemployment will continue to look bad...this is usually the last indicator to improve in an economic rebound because employers won't start rehiring until they actually see the revenue increase. 

For sure, there are still risks to the economy.  California's budget deficit is unresolved after voters rejected a lousy plan to balance the budget, and this could cause catastrophic defaults on the state's municipal bonds, rippling through the entire bond market.  While banks have been healing, we're not out of the woods yet.  The staggering budget deficits of the U.S. government are causing China to wonder if we'll default on the treasury bonds they've bought.  Can you imagine the calamity that would cause to global capital markets?

Is this a temporary stabilization just before another drop or is this the beginning of a rebound?  Stay tuned in coming months for the rest of the story.