Region's Recovery May Begin During the Winter

Posted by Mike Armstrong
November, 23, 2009
 Philly.com

Two of the newest measures of the health of the regional economy are showing signs that a turn in the business cycle may be near.

The Greater Philadelphia Leading Index has risen for five straight months through September. The index, built by the economics firm IHS Global Insight, uses indicators that generally change direction six months before the overall economy.

Phil Hopkins, director of research for Select Greater Philadelphia, which sponsors the quarterly report, retained his cautious outlook, but said the leading index could be forecasting a bottoming of the regional economy this winter.

(Remember: bottoming is good because it means the next direction is up.)

With lots of economists and analysts speculating that the U.S. recession ended during the summer, that doesn’t put our region too far behind the curve. But the start of an economic recovery often feels a lot like the end of a contraction because of the lousy job market.

Hopkins said it may be the end of 2010 before the region sees “sustained growth in employment.”

The other measure, the Greater Philadelphia Coincident Index, fell for the 20th time in the last 21 months. (A coincident index tracks indicators that vary directly with movements in the business cycle.) Hopkins noted that the month-over-month decreases have become more gradual and the hope is that it will begin to increase during the next three months.

In truth, the paint is still wet on these two indexes, which were launched in the thick of last fall’s global economic crisis. So while Hopkins is encouraged by the trends showing up in the indexes, the next quarterly report in February may be the key one that determines if these regional tools can “catch the turning point” in the business cycle.

All recessions are different, but Philadelphia’s reputation has been that it lags during recoveries. Following the 1991 recession, it took the Philadelphia area 69 months before employment surpassed its pre-recession peak, Hopkins said. It took the nation only 31 months.

But after the 2001 recession, the Philadelphia region surpassed its previous peak in employment in 41 months compared with 47 months for the U.S. as a whole, Hopkins.

And this time? IHS Global Insight forecasts the employment level here climbing above its pre-recession peak during the second or third quarters of 2012. Sounds bad, but that would be faster than 34 states.