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Sunday, March 29, 2009

Has the Economic Recovery Started?

From the Hoss's Mouth

Just like you, Hoss Cents Free Financial Money Magazine watched with great interest this week as stock markets around the world soared as Treasury Secretary Timothy Geithner released details of the administration's plan for financial recovery. Does this mean the economic recovery has started?

economic recovery
The Hoss does not have a crystal ball and cannot answer that question, but it certainly is a positive sign of a possible start to economic recovery. However, stock market performance is only one indicator among many that we must consider when looking at the overall economic stability.

Other factors that must be taken into consideration are consumer spending, housing sales and the unemployment rate.

Feb. 2009 housing sales in the United States increased from Jan 2009 but are still down year to year (Feb. 2009 over Feb. 2008). California was the exception, which showed a year to year increase primarily because of low record interest rates and the fact that the market was previously greatly overpriced. But it does appear that at least the bleeding has stopped, and once that happens, can full recovery be far behind?

With regards to consumer spending, Wal-Mart had a good year, while high-end retailers did not. When we see an increase in sales at these high-end retailers it is a positive sign for the economy.

Other positive consumer signs are an increase in car sales and increased movie attendance. Both of these indicate the consumer has some disposable money. To date, both car sales and movie attendance is down.

Now we come to the most important factor concerning economic recovery: jobs. In a consumer driven economy, if the people do not have jobs they will not have money to spend. So far, the jobless numbers continue to increase, which of course could be interpreted as a negative sign. But one must remember that businesses let employees go as a last resort in an economic downturn. However, when it comes to an economic upturn, employers are reluctant to reinstate those who were laid off until there is clear evidence of an economic recovery. So even though the jobless numbers are increasing, that does not mean the economy has not turned around.

Since Oct. 2008, the Federal Government has introduced several initiatives designed at stimulating the economy, creating jobs and thereby increasing consumer confidence. (TARP [Troubled Asset Relief Plan] $700 billion; Stimulus Package $787 billion; Housing Plan $75 billion; Federal Mortgage|Bond|Debt buy up and the Toxic Asset Relief Plan). Historically, initiatives such as these take six months to work their way through the system. This may also explain why we have, as yet, to see a decrease in the jobless rate.

So, even thought the Dow Jones Industrial Average has climbed 20% since its March 9th lows, we cannot assume this is the start of a full economic recovery, but we may have reached a bottom.

Sure there may be more ups and downs, but initial indications are the people have confidence in President Obama's administration and the plan they have put forth. Let's hope so, because without consumer confidence we will not see an economic recovery.

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