Back From the Dead? The Recovery Resumed in September

The economy had been near the edge of the cliff all summer, but slowly backed away as fall began

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The U.S. job market still stinks, and incomes are stagnant. But the economy actually looked much better in September than it did during most of the summer. Although a number of obstacles remain in the recovery's path, it moved forward last month. This is clear by considering a broad sampling of the major economic indicators.

A Lot of Green

Here's my usual monthly chart that rounds up some of the month's most important results:*

month in review 2011-09.png

Before delving into the numbers, on a purely qualitative level, you can see an awful lot of green, especially compared to the same chart for August. The comparison is enlightening:

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That's pretty dramatic. The balance of "improved" to "worsening" flip-flopped to nine-to-five in September from five-to-nine in August. In August, just two "directions of change" were green, indicating faster improvement or a switch from worsening to improving. In September, eight were green.

Digging Deeper

If you move past the color-coding, however, then you can refine this view a bit. While September was clearly better than August, it still wasn't quite as dramatically better as it looks. That's in part because, despite all the red, August's numbers weren't actually that bad. Several worsening indicators were nearly flat. That's not good, but it also isn't terrible.

The American Consumer

The big disappointment in September comes from real disposable income. It fell for the third month straight, though its decline was tiny. Because incomes declined, savings also dropped in order to support the month's additional spending.

And spending showed a hearty gain. Retail sales also rose. Given those results, it isn't surprising that consumer confidence also improved. The caveat here, however, is that we know that sentiment plummeted in October. So Americans' more aggressive spending may not have held up this month.


The narrative for the housing market really didn't change in September. Although new home sales rose, they remain very low. Existing sales continue to have trouble sticking above the annualized pace of 5 million. Finally, foreclosure activity is still low, as banks continue to iron out their procedures. So housing remains a blemish, but it isn't actively worsening.

Business & Jobs

Small business owners agreed with consumers: the economy was better in September. It was the first time their optimism had risen in six months. Manufacturing also expanded faster during the month. But the private sector's performance was mixed. Durable good orders fell, and the stock market worsened. Of course, we know that October has been a much more pleasant month for stocks.

The labor market, however, remained weak. The unemployment rate remained stuck at 9.1% for the third straight month. Although job growth was stronger in September than in August, it was still pretty weak. Remember, at least 125,000 jobs are needed just to keep up with the rate of population growth.

The Broader Indicators

The chart below shows the performance of some additional indicators, which are a little harder to judge as clearly good or bad:

month in review 2011-09 plus.png

As you can see, inflation was clearly slowing in September. Consumer core inflation had basically ceased. If this trend continues, it could embolden the Federal Reserve to provide additional monetary stimulus. As the chart also shows, however, both short- and long-term bond yields were already quite low in September.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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