Despite economic recovery seeming bleaker in the United States than many other parts of the world, there is still reason for optimism. 

U.S. federal reserve chairman Ben Bernanke announced today that the recession is very likely to be over.  Last week, U.S. stock prices had a great week as they rallied for 5 straight days.  The rise was fueled by reports of declining jobless claims and upbeat forecasts from large U.S. companies. The S&P index (which tracks the prices of the 500 largest U.S. companies) reached its highest level since October 6th, 2008.  Bernanke added that although the economy will feel weak for some time, most forecasters expect moderate growth for 2010.

The numbers below shows the Year to Date (as of Sept 15th) figures of the major North American indices (The first three are the major U.S. indices; the last is the major Canadian index):

Index YTD

Dow Jones +9.69%

S&P 500 +16.17%

NASDAQ +32.64%

TSX Composite +26.08%

Even though the U.S. still had the “recession” label attached to it, this does not mean that stock prices were still falling.  Remember that stock prices are forward-looking.  That is they are not an indication of a company’s present growth potential; they are an indication of what investors believe to be the company’s future growth potential.  This makes stock prices a “leading economic indicator” because they change before the economy does. 

Although there is not one accepted definition of recession, it is usually linked to GDP (Gross Domestic Product: basic measure of a country’s economic performance).  The GDP is updated every quarter and therefore reflects the past three months of economic data.  This makes the GDP a “lagging economic indicator” because it changes after the economy does. 

Some positive news is coming out of the U.S., just like the rest of the world.