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Tuesday, February 7, 2012

Economy still getting worse, but at least decelerating?

Posted by nithi.vivatrat on February 18, 2009

In more economic news, the New York Times had this article a couple of days ago pointing to a handful of economic indicators showing that, while the economy was still worsening, there are signs that at least the rate of descent may be slowing:

“You go from a free fall to a steady decline,” said Michael T. Darda, chief economist at MKM Partners. “Is that good? No, it’s not good, but at least you’re kind of falling at a slower pace, and that’s the first step to some of these indicators starting to flatten out.”

Note this section towards the end:

The government reported that 598,000 jobs were lost in January, the most for that month in two decades, and economists expect the unemployment rate to rise to 9 or 10 percent from January’s 7.6 percent. Because employment numbers typically lag the broader economy, millions of Americans may still be losing their jobs even after the recession bottoms out. [emphasis added by me]

As I have mentioned in a previous post, housing prices will rise with consumer confidence.  If many Americans are losing jobs “even after the recession bottoms out,” I believe that an improvement in consumer confidence will lag behind other economic indicators in an upswing, and any increase in housing prices will lag even further behind that.

Filed Under: Economy

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  • SSS
    The question for me is how do we know when consumer confidence is back? Is it when we all start spending money?

    It's never that simple. The Economist addresses this in an interesting piece a few weeks ago - "Wild-animal Spirits" from the 1/22 edition - pointing towards Hyman Minsky, "an unconventional economist who made it his life’s work to study crises, was convinced that they arose spontaneously. Financial stability itself creates confidence and risk-taking, eventually leading to recklessness and instability. After the bust, stability will return and the cycle will begin again."

    And far as the cycle goes, the writer also pointed out that "Some would seek to limit the ebb and flow of confidence with early warnings, as if financial busts were a hurricane or an outbreak of plague. Gordon Brown, Britain’s prime minister, would like to see the IMF cast in that role. History suggests that such schemes do not work. People enjoy booms."

    Oh and the title of the article? A sly reference to Keynes' term for consumer confidence. As Keynes defines it, animal spirits are a certain kind of confidence, a "naive optimism" in the future.

    Come back animal spirits, come back.
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