We're over the hump!

Five reasons to believe the worst is behind us

John Heinzl

From Friday's Globe and Mail, Friday, May. 15, 2009 11:31AM EDT

Take comfort knowing that the worst is probably over for the economy and financial markets.

At least that's what the economic data are saying. Sure, times are still tough in certain industries - ask anyone who works for Chrysler or GM - but here are five reasons to believe the recovery is for real, even if it doesn't feel like it just yet.


No, it's not a new ginger ale or antiperspirant. The Baltic Dry Index - which tracks ocean shipping rates for commodities - has risen for 10 consecutive days. That's the longest winning streak in three months, and it's being driven by a surge in iron ore shipments to China's steel industry.

The index hasn't been this high since Oct. 2. To the extent that higher shipping costs reflect a global economy on the mend, this is a positive sign.


The London interbank offered rate (Libor) - the interest rate banks charge each other for loans - fell the most in eight weeks yesterday and now sits at 0.85 per for three-month U.S. dollar loans. Libor, which determines rates on everything from car loans to mortgages, soared as high as 4.82 per cent at the height of the financial crisis, reflecting banks' unwillingness to lend for fear that the borrower would blow up. But it has been falling steadily as governments and central banks take steps to unlock credit markets.


Sales of existing homes in Canada surged 11.2 per cent in April - the third solid advance in a row and the biggest monthly increase in more than five years. With ultra-low mortgage rates bringing buyers off the sidelines, "the table appears set for a recovery in Canadian home sales and prices," said Bank of Montreal economist Robert Kavcic. Even in the United States, scene of an epic housing bust, signs of stabilization are emerging. Pending sales of existing homes rose in March for a second straight month, and construction spending edged higher for the first time in six months.


From their March lows, the S&P/TSX and S&P 500 are up 30.2 and 32 per cent, respectively. And it's the lower-quality stocks that are posting the biggest gains as investors rediscover their appetite for risk.

"The markets believe that the crisis mode of last autumn and early this year has passed," Merrill Lynch said in a note to clients. "We agree with this assessment and believe that investors should move to a less defensive posture."


That's not a typo. After years of living beyond their means and maxing out their credit cards for cars, boats and big-screen TVs, U.S. consumers are saving again. The personal savings rate, which was negative a few years ago, has risen to more than 4 per cent. While that may exert a drag on the recovery because there will be fewer people in the malls, "a sustained rise in personal saving would be a decided long-term plus for the economy," Merrill said.

To be sure, the recovery won't be smooth: But if the latest data are right, we're over the worst of the downturn.

Derryanne Hubbard

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