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On the one hand, the Dow Jones industrial average once again danced around 10,000 last week. Earnings of Caterpillar (CAT), Google (GOOG), and Apple (AAPL) far exceeded expectations. If U.S. gross domestic product rebounds as expected on Oct. 29 and turns positive for the first time in 15 months, it would confirm that the recession ended in the third quarter, at least statistically.
Meanwhile, back on Main Street U.S.A., the picture is drastically different. Unemployment has doubled in a year, to 9.8% in September, and there are about six unemployed Americans for every job opening. Home foreclosure-related filings—including default notices, foreclosure auctions, and bank repossessions—are on pace to reach about 3.5 million this year, up from more than 2.3 million last year. Home prices are stabilizing, and sales of existing homes rose sharply in September, but much of the activity was spurred by the soon-to-expire federal tax credit for first-time home buyers. No wonder that 82% of Americans responding to an ABC News/Washington Post poll conducted Oct. 15-18 say the recession isn't over.
It's normal for Wall Street to recover more quickly than the job market in the wake of a recession. Figures like stock prices and the difference between short- and long-term borrowing costs are known as "leading indicators" because they tend to be among the first to signal a recovery. Unemployment and consumer credit volumes fit into the "lagging indicators" category that bounce back afterward.
What's different in this recovery is the extent to which the leading indicators are soaring ahead of the lagging ones. Wall Street cheered on Oct. 22 when the Conference Board's measure of the economic outlook for the next three to six months rose a greater-than-expected 1%. But the same report saw the gauge of lagging indicators fall 0.3%. The worry is that if workers continue to lose their jobs and the ability to spend, the tentative recovery could morph into another downturn. In other words, while many economists are increasingly optimistic that a recovery is under way, some still warn that it could be W-shaped, meaning a second dip could be around the corner.
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