Deloitte Researcher Sees Recovery Signs In '09

Even with the U.S. gross domestic product decreasing 3.8 percent in the fourth quarter of 2008 versus the prior quarter, shifts in some key economic indicators in recent weeks suggest economic recovery will begin this year, global director of Deloitte Research Ajit Kambil today said at the annual Ultramar Travel Management Business Travel Forum in New York.

According to Kambil, the spread between the three-month London Interbank Offer Rate and three-month U.S. Treasury bill rate has fallen back to about 1 percent from a "spike" of 4 percent last year. Used as an indicator of credit and lending risk and as a determinant in the credit rating for corporate borrowers, under normal economic circumstances the "Ted Spread" should be about one-quarter of a percent to one-half of a percent, according to Kambil. A decline in the Ted Spread traditionally triggers a flow of credit into the banking system and increases lending.

"The banks will start lending more and more to each other and when they start lending to each other, they start lending to all of us," said Kambil.

Another indicator contributing to Kambil's optimistic outlook is the treasury yield curve climbing into the positive. At a negative rate, where it was at the end of 2006 and 2007, "it is one of the best predictors of a recession," he said.

One silver lining for corporations right now is procurement opportunities to lock in lower rates as commodity prices have fallen from record highs leaving corporations in a favorable position once the economy returns. "The reduction in commodity costs at this moment in time and putting in place long-term futures contracts in the sense that when we come out of the recession, commodity prices will go up because demand will go up," he said.