Tuesday, November 11, 2008

How to spot a recovering economy?

Now that the year 2008 is drawing to a close, the number one thing on everyone's mind right now must be how the economy will pan out in the new year. The guys at CNNMoney have just published their predictions as well as some advice on how to tell the worst is over (quoted below). Do you agree with this assessment?

The action plan

Keep your eye on three key signs that the overall economic picture is improving. These clues can help you decide when to make moves you may have put on ice for now, such as starting a business or moving to a bigger home.

  • Check the three-month TED spread

It's the difference between the interest rate at which banks borrow from one another (known as Libor) and the rate on three-month T-bills. The wider the spread, the more skittish banks are about lending. It's now just under 3%, far above historical levels; when it drops below 1% you'll know the credit market is almost back to normal.

Where to find it: Go to Bankrate.com, search for the three-month Libor rate and the three-month T-bill rate, and then subtract the T-bill rate from Libor.

  • Track real estate inventory

Historically, the number of months' worth of inventory on the market has reliably predicted home prices. Six months of inventory appears to be the sweet spot for a healthy market; right now it's 10 months. The National Association of Realtors puts out the inventory data each month, usually between the 22nd and the 25th.

Where to find it: Go to the Research section of realtor.org.

  • Watch initial jobless claims

The number of new people filing for unemployment benefits, released every Thursday morning by the Labor Department, has been running between 450,000 and 500,000 a week lately.

"When you see those numbers start to come down below 400,000, that'll be a very good sign that the worst of the pain is over," says Brian Wesbury, chief economist at First Trust Advisors.

Where to find it: Do a search for jobless claims on our Web site. To top of page

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