When Will It End?

Posted on Jul 1, 2009 :: Features
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Posted by , Insight on Business Staff Writer

It’s something everyone wants to know: When is the economy going to turn the corner? While they don’t have crystal balls, economists are often the ones we turn to in times like this to find out when the economy will start humming along again. Unfortunately, economists don’t have the answers, but they can share their expertise on what indicators to keep an eye on to see where the economy is going.

“You really need to look at forward-looking indicators, such as durable goods orders, certain commodity prices – especially steel and copper – and building permits for new construction,” says David Ward, who is serving as interim chancellor at the University of Wisconsin-Green Bay and is also president of NorthStar Economics, a Madison-based private economic consulting and research firm.

“People sometimes get caught up with indicators that follow the curve a bit, such as unemployment and gross domestic product,” Ward adds. “Those are all based on what’s happened. We need to focus on indicators that may help predict where we’re going.”

Unemployment numbers typically increase even once the economy has turned the corner, since many businesses are still dealing with the after-effects of the decline, says Lee Van Scyoc, an associate professor of economics at UW-Oshkosh.

“Unemployment will not necessarily go down as the economy begins growing again,” he says. “Businesses want to make sure the demand is still there before adding on permanent staff. It’s costly to hire and lay off workers. Companies will rely on overtime and current workers to deal with the increased demand as long as possible.”

Inventory levels also aren’t necessarily true predictors, Van Scyoc says. For example, inventory levels may decrease because businesses are selling more than expected or they may decrease because the business has decided to have less inventory on hand.

“We look at inventories and see if they are decreasing more than anticipated. If that’s happening, it means more sales are happening,” he says. “But if inventories are down and it was anticipated, that doesn’t tell you much.”

As for the stock market with its big swings, Van Scyoc says it both reflects and influences the economy.

“If people are worried about a major company going bankrupt, it will react by dropping. If the market is going down, however, it can also make people more worried about the economy,” Van Scyoc says.

Consumer confidence and home sales – which often get a lot of media attention – are other indicators that look back rather than forward, Ward says. If they move in a positive direction for a couple of months in a row, it’s a sign things may be improving, but as with unemployment numbers, they tend to lag behind the economic situation.

Van Scyoc says some businesses and industries tend to see improvement before others and those are the ones to keep an eye on to see if the tide is turning. For example, companies that make products for other businesses, such as Wisconsin Film & Bag in Shawano, and businesses involved with shipping those products are the first ones to notice improvements.

“We noticed an uptick in business since early April and have seen that sustained through May so we are very optimistic and think we’ve seen the worst of it,” says Wisconsin Film & Bag President Jim Feeney. “Across our customer spectrum, we’ve seen increases in orders. They are definitely ordering more now than between October and March. We think the economy is definitely improving.”

Stimulating the economy
Since President Obama signed the $787 billion stimulus package earlier this year, Van Scyoc and other observers have been waiting to see if those funds help jump start the economy. As of early June, Van Scyoc hadn’t noticed anything, but he adds it can take six to nine months for tax cuts or government spending to have an impact.

While there was much anticipation that the stimulus package would help states and municipalities move forward on building and improvement projects – which were designed to not only improve the nation’s infrastructure, but also pump money into the economy by creating jobs – engineering firms say the projects are slowly trickling in.

“Communities haven’t received the money yet or they’re realizing it’s not as much as they thought,” says Chuck Stevens, director of marketing for R.A. Smith National in Brookfield, which has offices in Appleton and Green Bay. “For example, there are millions in the stimulus package for new fire stations, but once you divide that up by 50 states, it isn’t as much as it originally looks.”

Local and state governments are also collecting fewer tax dollars because of the recession, which makes their finances more difficult to manage, Stevens says.

“Municipalities and counties are talking about layoffs and furloughs right now and it’s not the time for them to move ahead on big projects,” he says.

John Bartz of Martensen & Eisele, a Menasha engineering firm, is optimistic that once stimulus dollars make it to the local level, municipalities and schools will start moving forward on their projects. “The public housing sector was earmarked for some stimulus dollars so we expect some projects there. The same goes for schools and their projects,” he says. “We’re hopeful things will pick up later in 2009 and into 2010.”

As for projects in the private-sector, financing is still difficult for some businesses to get, which is slowing down their planned projects, Stevens says. “We need more liquidity to get projects going. We need more time to get through this. We expect things to remain slow through the end of the year,” he says.

And whether it’s a private or public sector project, Bartz says redevelopment and upgrades to existing buildings, such as making them more energy efficient, are more popular now than building new.