Tuesday, July 21, 2009

Economic uptick on the way?

I've been posting consistently gloomy economic prognoses for well over a year based on not seeing any hints that the economy might turn around. While I might not yet be ready to jump on the "It's almost over!" bandwagon yet, This Associated Press report is in fact the first indication I have seen of what might be a harbinger of economic recovery. So here it is:

More plans to build homes, higher stock prices and fewer people filing first-time claims for jobless aid sent a private-sector forecast of U.S. economic activity higher than expected in June.

It was the third straight monthly increase for the New York-based Conference Board's index of leading economic indicators, and another sign pointing toward the recession ending later this year.
Now I am suspicious of what this is an indicator of, and I am always suspicious with I see an AP news report with a byline by Nedra Pickler who has done some character assassination and misleading reports in the past and has earned a reputation of a reporter with a right-wing bias rather than of a reporter who tries to report as accurately and neutrally as possible.

Besides the suspicious nature of reporter herself, there is a question regarding the nature of the report itself. While these indicators may predict that the recession is nearing the end, they may also be very early and unreliable indicators. They may not indicate that the economy itself is beginning to recover on its own. They may be merely indicators that the stimulus funds are building up steam and becoming more effective.

How's that? Well, they may not yet be indicators that the economy is trying to regenerate itself. They may be indicators that the economy is sort of in the mode of a gasoline engine that coughs and sputters, then dies again when it has problems and is trying to start. But while I am suspicious of reading much positive into these indicators, at the same time they are still the best news out of the economy in well over a year. Again back to the metaphor of the gasoline engine that is trying to start but can't yet do so, that is a real indicator that the gasoline engine does not have something that totally prevents it from starting.

To again shift metaphors, these may not be indicators of a true dawn. They may instead be little more than indicators that resemble the false dawn that sometimes is noticed early on a cloudy day as the sun's rays are reflected to the ground before the sun itself actually has risen. So I find it guardedly good news.The time is too early to believe that the economy is actually coming back.


Slice said...

The economy has to recover at some stage. Most likely towards the end of the year.

Richard said...

I agree with the first half of your statement. But the second - when?

The Depression lasted a decade until war spending was big enough at last to shake the economy loose. Japan's doldums lasted at least a decade and they never fully recovered because so many competitors had popped up and Japan never made the necessary fundamental changed in their economy.

Right now I still see no reliable indication that the economy itself is trying to recover. It remains on life support based on government spending.

The economy itself will not recover until the consumers (70% of GDP)start spending again, and to do that they have to have more jobs, better pay, and less employment uncertainty. Right now all of these things are going the wrong direction.If consumers don't start spending, then investors will not invest in putting unused plant and equipment back into use because their is no market for the product.

Since investment is locked to consumption and lags behind it, there remain international trade and government spending. But international trade is still trending down, particularly since the Buy American actions are causing other nations to retaliate. That leaves only government spending to support the economy. It's all we have right now, and it's not enough to fund a recovery. All it has done is slow the collapse into what very probably was Depression II (if you don't count the Great Depression of the 1870's.)

Jobs and payrolls are the key. They are still trending in the wrong direction for the economy to help itself any time soon. It won't be this year. The lag time on creating new jobs, hiring and making masses of consumers feel secure enough to start spending again is at least a year from now, probably more.