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5 Early Indicators that Signal the Economy is Turning Around

{ Posted on Jan 07 2011 by Marcus Alston }

I am already on record for some pretty optimistic financial predictions for 2011.  Overall, so far I think the year has started off with encouraging financial news and if things keep up I will look like a genius, fortune teller or just a plain lucky prognosticator.

The below are 5 key financial indicators that signal the economy is turning around:

Spending is Up.  Most economists believe consumers have to start spending more in order to grow the economy again.  Consumers will not start to spend unless they start feeling better about the economy and their own personal financial situations.  It is kind of a chicken and egg scenario—which comes first, consumer spending or a healthier and growing economy for consumers?  Well, there are indicators that consumers are willing to spend now:

1. The holiday shopping season was the best since 2006 despite a tapering off in late December as retailers jump started the holiday buying season prior to Thanksgiving which led to a strong November 2010.

2. Revenue at stores open at least 1 year rose 3.8% over last year, according to an index compiled by the International Council of Shopping Centers.  To put it in perspective, this represents the largest increase since 2006, when it rose 4.4%.  The index rose 5.4% for November and 3.1% for December.

While spending picked up in 2010 and promises to continue, some retailers (including Target Corp., Gap, Inc., Costco Wholesale Corp. and Macy’s Inc.) reported gains below Wall Street expectations.

Jobs are Coming—Maybe a Boom? Economists are forecasting an average of 2.5 million jobs will be added to the U.S. economy in 2011 according to a survey by CNNMoney.  This would be the best 1 year gain in hiring since 1999.  More optimistic estimates come in at about 3 million new jobs in 2011 which would average out to 250,000 new jobs per month!  Pessimists are even predicting about 1.8 million new jobs which would still be about double the hiring in 2010.

Unemployment Dropped from 9.8 to 9.4% in December 2010 which is Significant.  While some had predicted a drop to 9.7% in December, the drop in unemployment to 9.4% is explained by some as being mainly caused by people who stopped looking for work.  Those who stop looking for work are not counted in the unemployment calculation.  Nevertheless, this metric is at its lowest in 19 months.

Tax Cuts and Key Laws.  The tax cuts passed last month for 2011 should increase disposable income and help increase consumer and business spending.  There were also key laws enacted that will have a significant impact on the economy and consumers in 2011 including Health Care Reform, the Credit Card Act, the Student Aid and Fiscal Responsibility Act, and the Wall Street Reform and Consumer Protection Act.

Federal Reserve Chairman Offers Optimism and Caution.  Today, Federal Reserve Chairman Ben Bernanke offered an optimistic outlook for the economy while appearing before the Senate Banking Committee. However, Bernanke cautioned that it could take 4 to 5 years for the unemployment rate to drop to its historic norm of roughly 6 percent.

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2 Responses to “5 Early Indicators that Signal the Economy is Turning Around”

  1. ConsumerMiser, as always, thanks for the nice informative article. Your financial signals seem to be positive indicators that show that our economy is turning around. After the last few years, we really need it.

  2. James, thanks for the feedback. You are very welcome. I really enjoy blogging and from the signals I am seeing in the economy, I am very hopeful about the economy going forward. 2011 should be a great year.

    I truly believe a lot of the actions that have been taken by the government (federal, state, and local) to address the economic downturn will start to become more visible. Additionally, other measures are being considered to continue to make the economy stronger. Finally, consumers have less access to credit and are much more educated about the perils of living above one’s means. We are seeing an emphasis of frugality.

    I feel a new blog post coming on! Thanks!

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