Today I would like to continue with favorable developments. It is still necessary to make a pick-up-with-tweezers operation; but it is okay; I take this trouble to find a single favorable indicator. Today's picking up operation focuses on indicators from abroad.

Recently, economist Robert Gordon published an interesting article. He works at US Business Cycle Dating Committee since 1978. He has also written famous academic articles on the issue. In short, he is an expert in the field. And expert opinions are what we need most nowadays. Let us take a look at opinions of this expert. The article tries to answer the question 'did the economy hit the trough?' There are various ways to do this. For instance, you can hit the way to question whether or not the financial sector started to turn around, as it is mainly responsible for the troubles we have faced. Or, you can focus on whether or not the economic policies implemented by advanced countries are remedying the wounds. Statements made by FED President Bernanke this week give significant clues in this respect.

Another way is to examine the indicators that predict the troughs in similar contractionary periods in the past. If there exist such indicators, in other words if there is an indicator that reached the trough (or the peak) before the date of the actual trough (or the peak), we can observe the movement of that indicator in the current periods.

There is no doubt that this is a mechanical approach; however, it can give important clues when evaluated together with other approaches. That it is mechanical does not mean that the efforts are useless. In 'normal' times, it is relatively easier to make prospective predictions. On the other hand, it is quite hard to estimate cycle dates. This is in fact among the reasons why it is hard to make prospective predictions in countries like Turkey, where 'normal times' are rarely observed.

The question 'Did we reach the trough?' is in fact same with the question 'When the downturn end and the economy will turn around?' i.e. with the 'When is the turning point?' Leading indicator Gordon used is 'new unemployment claims' announced on weekly basis. As the author suggests, four of the new unemployment claims reached the peak before the trough of five recessions in the US economy. The lag between them varies from 4 to 6 weeks. In the fifth recession, new unemployment claims lagged two weeks behind the trough of the US economy.

Therefore, there is a robust link between these two variables. Second, this link generally works in the direction that unemployment claims predict the trough in economic activities. Of course the research carried out by the author is much more comprehensive; it scrupulously examines various probabilities and carries out sensitivity analyses.

Another striking aspect of his findings with respect to the period we are in is that the week ending on April 4 is the peak for new unemployment claims. In the light of this, he argues that the US economy will reach (are have already reached) the trough around mid-May or June. You can find this short study at: http://www.voxeu.org/.

This commentary was published in Radikal daily on 11.05.2009