Turning A Corner?

If you missed “Turning a Corner” in the July 2nd edition of The New York Times, a trip to their Web site is worth your time, particularly because the interactive version of the article is easier to follow. The article describes research done by the Organization for Economic Cooperation and Development on the relationship between industrial production, leading indicators such as consumer confidence and the stock market, and economic cycles since 1969. Noting that leading indicators have turned higher already, the OECD concludes that industrial production is about to follow. Click here to view the interactive graphic.

Several other indicators point to a near-term rebound in production, including the Institute for Supply Management’s manufacturing and non-manufacturing indexes, durable goods orders and factory orders. All of these reports show that new orders are increasing or headed in that direction, and inventories are being depleted, a combination that points to an increase in production activity.

Nonresidential private investment in structures, equipment and software accounts for less than 10 percent of GDP while personal consumption expenditures account for 70 percent, which means that businesses can’t lift the economy out of recession by themselves; they need help from consumers. Nevertheless, business spending will play a supporting role in the coming recovery, particularly as exports to faster-growing markets around the globe begin to rebound. At some point businesses will need to add workers, which will help tip the economy back into a virtuous cycle of growing employment and increased consumer demand.