The collective sigh of relief at 8:30 this morning was palpable – not least from President Obama and Ben Bernanke. 

As I mentioned on Wednesday, this morning’s April job report from the Department of Labor set the market up for a significant day. And with the data showing that the U.S. lost 539,000 jobs during the month, compared with the revised total of 699,000 losses in March, it’s a clear sign that the most important driver of economic health is improving.

The stock market obviously cheered the news, and having expressed more optimism on the U.S. economy recently, both Obama and Bernanke will be relieved to have done well on this mini credibility test. 

It was a gutsy call, given that making economic predictions can be a crapshoot. For example, the Survey of Professional Forecasters has failed to predict a single recession in the last 30 years, according to the International Herald Tribune. Not exactly a great track record for a survey that only began in 1968, with the Federal Reserve Bank of Philadelphia running it since 1990.

However, there is a lesser-known, but much more accurate source…
 

The U.S. Economy is Not Out of the Woods Yet 

While a clearing may have emerged, the U.S. economy is not out of the woods yet. Far from it. Many believe that the correction from a multi-year bull market for stocks and the bubblicious real estate market won’t be truly finished until late this year – but most likely not till sometime in 2010. 

But with Wall Street’s poor track record, who knows? That’s why a better gauge comes from the New York-based Economic Cycle Research Institute. 

Founded in 1996 by the late Geoffrey Moore at the ripe old age of 82, the group spoke up in 2000 and correctly called the end of the bullish run for stocks and the ensuing recession. This flew against the “common consensus,” which boldly proclaimed that the Fed’s chainsaw job on interest rates would boost consumer spending and stimulate the economy. 

Just proves the value of being contrarian. We all know what really happened. The Economic Cycle Research Institute’s thinking was simple: Slack demand sent goods orders tumbling and a pileup of excess inventory. Result: Job cuts. The group also correctly forecast the economic swoons of the early 1980s and 1990s. 

Moore was a true trendsetter in the economic forecasting business. He used his academic knowledge to create some of the key leading indicators (such as historical patterns) that are still used today to gauge the economy’s direction. 

The New York Times reports that even Alan Greenspan took one of Moore’s statistics classes at New York University in 1946. While there was no text messaging, Facebook, or Twitter back then, Greenspan was clearly daydreaming in class, as he obviously wasn’t following Moore’s practices as closely as he said he did. 

So what does the Economic Cycle Research Institute say about today’s economy?
 

Are We Approaching The End Of The Recession? 

“We’re in the worst recession since World War II,” says Lakshman Achuthan, the group’s managing director. That’s the bad news. 

But quoted in the International Herald Tribune, he states that, “The days of this recession are limited.” 

Supporting his assertion is the group’s plethora of research, which shows that in every downturn of the past 75 years, the economy has started to tick back upwards within four months of a slowdown in the pace of the economic decline. 

We have a long way to go, of course. But based on that track record, today’s improved job numbers, coupled with other encouraging data could signal that we can start to look towards the end of this recession. 

And it’s worth noting that while Achuthan thinks the stimulus plan and falling prices will spur more consumer spending while businesses simultaneously cut costs to become more profitable (or less indebted, depending on which way you look at it), he doesn’t believe the recovery will be mind-blowing, since the weights that burden the economy are too heavy to simply cast aside with ease. 

For example, both the job market and housing market have a very long way to go before turning positive, with fiscal deficits also a growth-blocking hurdle. 

So while the Economic Cycle Research Institute’s data is encouraging and we may be approaching the end of the recession, there’s a big difference between coming out of one and growing again. But to find out how you can profit regardless, see below… 

Martin Denholm
Smart Profits Report