July 20, 2010 - There is some solid evidence building that a recovery is beginning. The broader data points like unemployment, housing starts, and consumer spending aren't showing them yet. The reason for hope of a real recovery lies more in sectors that are often precursors to economic growth.

Another sector doing well: autos, especially international manufacturers. The Chinese market for luxury cars is so strong that Mercedes, BMW, Lexus, and Buick (yes, Buick...it's a very different car in China, especially the perception of it). Domestically sales were slower in June (the latest month for data), but May was very strong. July will help tell the full story as to whether more U.S. buyers are coming out to the show rooms. But if investors only look at the balance sheet of Ford, with its recent pay down of debt, they can see a much healthier company. If GM can successfully launch its IPO, it will definitely use some of the proceeds to pay back the government and other debtors. Maybe even Chrysler will be able to go public again. It's new Jeep is getting rave reviews. Autos are a good indicator of economic recovery since they require so many industries to supply parts and materials.

The housing market may be at the bottom. While the expiration of the first time home buyer credit has slowed the purchase of many entry level homes, upper and middle priced homes should start to see more activity as lenders start to open their wallets. Jumbo mortgage applications are receiving warm receptions from several lenders. Of course, the loan will have a very low loan to value and the down payment needs to be substantial. Still, the money is starting to flow into that sector. Keep in mind that first time home buyers that rushed to take advantage of the tax credit only expedited their decision. They were going to buy a home anyway. That credit didn't spur any new demand since no one is going to save $8000 by taking on a relatively large mortgage if they can't afford the home. Inventory of homes has decreased to 8 months, down from 13 months. Since real estate is so local, some pockets have very little inventory, while Las Vegas and Phoenix have plenty for anyone who wants to buy. There's a concern of real estate owned by lenders. That's still a problem, but those institutions can afford to hold on to those homes for some time, if necessary. They'll still come to market, but no one expects they will all sell at once.

The last bit of good news is the spending by corporations. Many are starting to buy technology (obvious from the paragraph above on tech) to create better efficiencies. They're collectively sitting on trillions of dollars. They've been watching, waiting for the glimmers of data that say it's the right time to expand or to hire. Those glimmers aren't there yet. But they realize that it's a great time to update their technology and improve costs. Once they start spending on hiring, which will come, a real recovery is possible. This is a good start toward that day.

Nothing strong enough here to say that a recovery is imminent. But these are positive signs. Talk of a double dip recession seems just that. To have another recession, consumers would have to spend a lot less. Most people who needed to be laid off, probably have been. Those remaining will work longer hours as demand picks up, raising their take home pay, allowing for more expenditures. That creates more demand. More workers will be needed to fill it. Then the economic data will reflect what these early indications are already suggesting.

ed Allrich