What is a ‘mustard seed’
Mustard seed refers to the economic event, which ultimately may cause the economic recovery. Such events usually seem small and insignificant, but may either signal or cause an increase in economic growth after a recession or bear market.
Breaking down the ‘mustard seed’
Mustard seeds are one of the smallest seeds in agriculture, but produce large trees, sometimes under adverse conditions. Historically, what did the mustard seed is ripe for metaphoric link, including multiple instances in the Bible that relate to the tiny seeds, which are often interpreted as representing the growth of Christianity throughout the world. Larry Kudlow, formerly of CNBC and currently Director of the National economic Council, popularized the term in the context of financial markets through the editorial opinion of the analysis of the US economic recovery after the financial crisis of 2008.
Mustard seeds and green shoots
In fact, mustard seeds describe the same phenomenon as the term green shoots, popularized by the former Chancellor of the exchequer of great Britain Gordon Lamont in the recession of 1991. During a recession or bear market, many investors will look for signs of reversal. When these symptoms may be difficult to see, investors often take the next logical step and look for signs that ultimately can bloom in stronger rates of return. Like their agricultural counterparts, not all mustard seeds take root and not all the green shoots to produce full-grown products.
For example, a small change indices, indicators of consumer confidence and consumer spending, such as the consumer price Index may portend a reversal, if they represent the beginnings of a shift in consumption, which can lead the economy to recovery. Other distant signs of recovery may include the growth of Bank lending which could indicate a growth in the small business sector, in turn, foreseeing the growth of employment somewhere down the road. Other business indicators such as those included in the index, purchasing managers can provide hints that the economy is starting to stabilize and return to growth.
Difficulties of economic forecasts
The Chairman of the Federal reserve system of the USA Ben Bernanke famously described what he considered to be “green shoots” in the U.S. economy in 2009. Instead of the rapid recovery of sustainable growth, but the indicators Bernanke saw led to a much slower and longer recovery period. For better or worse, mustard seeds and green shoots become much easier to identify in retrospect than in real time, when it can be almost impossible to determine whether a hopeful sign will actually come to fruition.