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Green shoots of recovery or hopeless optimism?

  • Story Highlights
  • The Times says if you look at the hard data then confidence is returning
  • The problem is there are so many different predictors of recovery
  • Some rely on unemployment figures, others retail sales or housing sales
  • Ultimate green shoot for many is nothing more than the stock market
By Jim Boulden
CNN
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LONDON, England (CNN) -- The headline in Tuesday's Times of London stating that the "Credit crunch has ended" might have been missed during the furore over the expenses of Britain's elected officials.

For many people the stock market is the best indicator of how well the economy is doing.

For many people the stock market is the best indicator of how well the economy is doing.

So it's over is it?

The Times says if you look at the hard data, like Libor (the rate banks lend money to each other) and the Ted spread (a banking confidence index) and the Vix (share price volatility), then confidence is returning.

Welcome to the latest round of "Green Shoots" indices.

What's your favorite green shoot? Should you rely on unemployment figures to gage this recession? Or retail sales? Or even the housing market or the stock market?

Everyone is looking longingly for those pesky green shoots of recovery. The problem is there are so many different predictors of recovery. And they can vary from country to country.

One man's green shoot may just be another man's weed. In the United States the pundits are obsessed with housing starts; the number of new homes built on ploughed-under farms or once-pristine desert. Many of these are built on speculation, without buyers, so new home starts are seen as a barometer of the mood oF consumers.

Germany has one of those as well. You've probably heard the term -- Ifo (pronounced ee-foe). It's an indication of business sentiment and has a key element: expectation. So it's a combination of reality and perceived reality. Both categories improved slightly in April.

Many people also follow unemployment figures. They are easy to understand. Of course there are no green shoots there. But unemployment, like recession figures is really a lagging indictor. Economies recover long before either shows some green peeking through the dirt. People can continue to lose their jobs because employers don't believe the green shoots before them.

As the Wall St. Journal noted on Tuesday, companies don't like to add jobs until they see an actual increase in activity in their sector, then they play catch-up.

The problem with green shoots is that people can be accused of talking up the economy. The Economist has created a 'Green Shoot' index. It tracks the number of times the term appears in the newspapers. There was hardly a mention of it in 2008. The number of hits bubbled higher during the beginning of this year and absolutely soared in April.

But saying doesn't make it so, but the Economist says keeping tabs on the use of the words like "recession" is a good indictor. That use of that word apparently shoots up in use before the official figures confirm it.

Still, the ultimate green shoot for many is nothing more than the stock market. Sure stocks tend to follow each other like lemmings down and in the current situation, they follow each other higher.

But they do really capture the mood. Though stocks cannot tell us whether we are in the midst of a bear market rally, a bear trap or a real bull market.

Who knows if a spring frost is just around the corner?

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