A More Moderate Contraction

Signs continue to emerge which suggest the rate of decline in economic activity is moderating. Real GDP will still likely post a decline in the second and third quarters but the drops should be considerably less than what we saw in the past two quarters. Job losses should also moderate, although the recent spate of vehicle-assembly plant shutdowns and dealer closings may cause layoffs to spike again this summer.

Recent economic reports support the notion that the contraction is moderating. The Leading Economic Index rose 1.0 percent in April, marking its first increase in seven months and most significant gain since June of last year. Seven of the ten indicators increased during the month, with the most significant gains coming from stock prices, the interest-rate spread and consumer expectations.

The large improvement in the financial components of the LEI takes some of the shine off April's increase. Still, the large aggregate increase is hard to dismiss and confirms other anecdotal reports that suggest conditions are either bottoming out or close to it.