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Paul Carman, VP North America gives an overview of what is happening in the US as the recession recedes
The US economy, while far from robust, shows mixed signs of growth. Most major economists have declared the recession to be over and the stock market continues to rise, approaching the “magic” 10,000-point. However, unemployment continues to rise and is a major issue in some key areas.

The US Bureau of Labor Statistics reported that non farm payroll employment continued to decline in September (-263,000) while the unemployment rate (9.8 percent) continued to trend up. The largest job losses were in construction,
manufacturing, retail trade and government. Since the start of the recession in December 2007, the number of unemployed persons has increased by 7.6 million to 15.1 million and the unemployment rate has doubled to 9.8 percent.
 
As we enter the final quarter of 2009, a number of important indicators are beginning to show expansion, suggesting that the trough of the current contraction may have come in the second quarter of this year. However, not all incoming information has been positive. Some data suggest that any optimism should be tempered, that this fledgling recovery has a long way to go before the economy achieves stability and that the key word moving forward is “uncertainty.”  

An example of recent growth is the Institute for Supply Management’s Purchasing Managers Index for Manufacturing. In August, this indicator crossed the critical threshold of 50 for the first time since January 2008. And it remained above 50 during September - with a value of 52.6. This typically signals expansion in the manufacturing sector. The ISM’s non manufacturing indicator also rose into expansion territory for the first time in a year, to a value of 50.9

Conversely, the job picture in September is no cause for excitement. During the month, the economy shed 263,000 jobs and the unemployment rate rose to 9.8 percent. The story becomes somewhat more worrisome when looking at only private-sector jobs. As of September, the number of non government jobs was just below that seen in June 1999, leaving the impression that 10 years of private sector progress has been lost through 21 months of labor market downturn. There is some optimism to be found in the job market, however. Job losses in housing-related industries are now tapering off at about the same pace as in non housing-related activities, suggesting that the structural adjustment that this sector has been undergoing since roughly 2005, may be coming to an end.

On the financial side, a host of indicators used to assess the stress of credit and securities markets are returning to historical levels, reinforcing the view that markets are beginning to heal. That is certainly the message coming from the three-month LIBOR–OIS spread. After a period of uncharacteristic elevation, the spread is quickly approaching levels seen well before the current downturn.

All in all, an examination of the usual indicators seems to suggest that the worst of the recession is over and that sufficient conditions for growth may finally be in place. However, the speed of an eventual recovery is the subject of a wide range of opinions. The disparity in views can be traced in part, to an unusual feature of this contraction: despite sharp declines in employment and GDP, the overall efficiency of the economy (based on total factor productivity) appears to have remained intact throughout the downturn.
 
Deep contractions, both in the U.S. and internationally, are typically accompanied by large declines in the efficiency of the economy. The departure from this standard makes it particularly difficult to assess the characteristics of an eventual recovery. Typically, more-severe-than-average contractions are followed by stronger-than-average recoveries. But the very presence of this productivity anomaly suggests that the U.S. economy is not living through normal times. As a result, policymakers will still be navigating uncharted waters in the months to come.