There will be several recovery-based articles written here in the next few months. That way all the readers here can either learn more about what will be written here by this author in the next few months, what to look for as we recover, or receive a nice, basic refresher course in macroeconomics. Unfortunately, yesterday was not a day worth analyzing due to the full closure of the entire United States economy for Memorial Day. We will not have the closing report from Wall Street or anything until 4:00pm eastern time today.

Everybody knows that a recession is a general slowing of economic activity over a sustained period of time or portion of a business cycle, mostly if Gross Domestic Product (GDP) is down for two quarters. During a recession, many economic indicators will vary in the way they react, but all will fall relatively. This includes production as measured by Gross Domestic Product (GDP), employment (called joblessness during harsh economic times), investment spending, capacity utilization, household incomes and business profits. This is simply due to the fact that money begins circulating slower and there is less to go around. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation, all hoping cash flow will spur. A depression is really only characterized as a recession that lasts longer than a year or two.

Now for the things you may or may not be as privy to. As briefly mentioned in a previous article, the indicators to the longevity of a recession and the possibility of a recovery are leading, lagging, and coincident. Leading indicators are the economic indicators that actually send us spiraling into a recession or jacking back up into prosperity. Lagging indicators react slowly to economic changes, and are therefore worthless as far as prediction goes. They really are best at assessing the current status of a recession, for instance, jobless numbers that are still on an incline even though the worst is over. Coincident indicators are also used to assess current economic conditions but are understood to be simultaneous or sectional and not always related to the entire economy as a whole.

Leading indicators (as found in the Index of Leading Indicators) are:

1. Average number of initial applications for unemployment insurance
2. Number of manufacturers’ new orders for consumer goods and materials
3. Speed of delivery of new merchandise to vendors from suppliers
4. Amount of new orders for capital goods unrelated to defense
5. Amount of new building permits for residential buildings
6. The S&P 500 stock index
7. Inflation-adjusted money supply
8. Spread between long and short interest rates (the yield curve)
9. Consumer sentiment
10. Average weekly hours worked by manufacturing workers

Lagging Indicators (as found in the Index of Lagging Indicators) are:
1. The average duration of unemployment (inverted)
2. The value of outstanding commercial and industrial loans
3. The change in the Consumer Price Index for services
4. The change in labor cost per unit of output
5. The ratio of manufacturing and trade inventories to sales
6. The ratio of consumer credit outstanding to personal income
7. The average prime rate charged by banks

Coincident indicators (as found in the Index of Coincident Economic Indicators) are:
1. Number of employees on nonagricultural payrolls.
2. Personal income less transfer payments.
3. Industrial production.
4. Manufacturing and trade sales.

As the leading indicators begin to show favor, we can start planning on a good recovery. Now remember, a full, solid recovery requires total solidarity under the foundation we’re currently rebuilding. That means a slow, steady recovery with wavering totals and indexes is good. It means that we are building only on the confidence we currently have instead of trying to jumpstart the economy onto a foundation that just is not ready. This author will be following the growth and decline of the economy as it comes and goes, referring to this article to show where we are in the economy, giving the best investment advice from experts all over the country and from myself, relating it to your pockets and your news.

The United States is entering a much needed economic recovery. The worst of the recession is over. (Keep an eye out for articles this week detailing why that assertion is correct.) Unfortunately, the economic mood deteriorated last week as investors began to question whether the recent rally was premature. They were also warned about British government debt that raised concerns about how much money the U.S. government owes, mixed with the longstanding concern that we are borrowing entirely too much money from China and other countries.

As stocks rallied, starting in early March, investors were able to find signs of hope in reports that showed a still struggling economy. As the rally is slowing down, investors are rather uneasy going into this trading week, which will see through to two reports on April home sales and the latest assessment of consumer confidence. Combine that with a potential June 1 Chapter 11 bankruptcy filing by General Motors, and you have investors all over the country ‘sitting on pins and needles’.

What is scaring investors right now is the amount of jobless figures that are still going up. What investors fail to realize is that there are two kinds of economic indicators: leading and lagging. Leading indicators are economic actions that foretell an upward moving economy. Lagging indicators are economic actions that react slowly to economic changes, therefore leaving no predictive value. Jobless figures are a lagging indicator due to the fact that jobs are not created by most companies until capital is obtained or accounted for that support them.

Jobless figures are not going to go up until all the leading indicators, which are very strong right now, manifest themselves in the way of solid economic recovery. Economic recovery can and will not happen quickly because a strong recovery happens slowly as a solid foundation is formed under each step. The economy will waver a little with each rally followed by a short decline as that slow recovery has solidarity formed under it. You are also guaranteed to see a few more struggling businesses, especially in the financial market, hit Chapter 7 bankruptcy, liquidate, and be swallowed up by stronger businesses. When that occurs, there is nowhere to go but up because there are fewer weak businesses to slow down and weaken the recovery.

Major leading indicators squeezed out a gain last week. The Dow Jones industrial average rose 0.1 percent, while the Standard & Poor’s 500 index ended the week up 0.47 percent. The first test of ability to build on these gains comes Tuesday, when the Conference Board releases its May consumer confidence index which should provide some insight into consumers’ willingness to spend. Ron Weiner, president and chief executive of RDM Financial in Westport, Conn., says that while any positive news about consumers would be welcome, the market is likely to have just a short-term upward movement. “We want the consumer to be out there, we want them to spend,” Weiner said. “For the most part, however, we don’t see consumers going to pull us out of this economy because they are also paying down debt at the same time.” Investors are also concerned about retail due to the Commerce Department’s disappointing retail sales report for April, which took the market by surprise May 13 and sent stocks plunging.

Analysts say more stabilization in the housing industry is needed for a recovery to occur. A government report is also due this week on U.S. home prices during the first quarter of 2009. The housing data could be a big force in shaping investors’ attitudes. A housing recovery is crucial to helping boost consumer confidence and to allow banks to put aside some worries about eroding asset values.