...And The Ranks Of Bullish Economists Are Growing

Small businesses may be whistling in the dark, but they're hardly alone. A growing number of economists also believe a recovery may be at hand. In his weekly report on the economy, for example, Michael Evans of Evans Economics Inc. declares that "the recession has ended." Lehrman Bell Mueller Canon Inc., an Arlington (Va.)-based consulting firm, predicts that the economy will surge at a 4% annual rate in the current quarter. And both DRI/McGraw-Hill and Giulio Martini of Sanford C. Bernstein & Co. believe that the omens point to a modest growth rate of less than 1% in the second quarter followed by a faster pickup later in the year.

While the evidence is mixed (as it always is at economic turning points), the bulls can point to some promising signs of imminent growth -including the recent downward trend in weekly initial unemployment insurance claims, the pickup in home prices and sales, and the recent stock market rally.

How can you tell if the recovery foreshadowed by such leading indicators has indeed begun in earnest? Martini of Sanford C. Bernstein advises economy watchers to ignore employment and unemployment data (except for jobless claims), since they tend to continue to deteriorate in the early stages of an expansion. The best tack, he says, is to focus on measures related to physical output, such as industrial production and manufacturers' new orders for materials and consumer goods, which typically start posting rapid growth as soon as a recovery begins.

Martini calculates that in the three months following past cyclical troughs, the average annual growth rates of industrial production and real new orders have been 10% and 46%, respectively. "If these output measures show significant strength in May and June," he says, "they will validate our view that the recovery has probably begun."

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