Banerji: The End of the Recession

This post appeared yesterday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.

The end of this recession -- the most severe downturn since World War II -- is finally in sight. This is the clear message from Economic Cycle Research Institute's array of leading indices of the U.S. economy.

What are these indicators? One is the ECRI's U.S. Long Leading Index (USLLI), which has the longest average lead times of any U.S. leading index. Another is the Weekly Leading Index (WLI), which has a shorter lead over the business cycle but is very promptly available.

The growth rate of the USLLI turned up in November 2008 and has now advanced for four straight months. The growth rate of the WLI turned up soon after that, in early December 2008, and as of mid-April 2009 it had been rising for more than four months (see the top two lines in the chart below). A rigorous examination of the data affirms that both USLLI growth and WLI growth have been in cyclical upturns for at least four months.

Therefore, the economy is on the cusp of a growth rate cycle upturn -- i.e., a cyclical acceleration in economic growth. In other words, U.S. economic growth, which, according to ECRI's U.S. Coincident Index growth rate, is still plunging deeper into negative territory (bottom line in chart), will start becoming less negative in short order.

Signs of Recovery Ahead

Not Just Green Shoots

But so what? Isn't this tantamount to the growing conventional wisdom about the slowing descent in economic activity? Indeed it is, but those who dismiss this development don't understand its implications for a business cycle recovery.