Are We There Yet?: The Economy and Mixed Messages

For the first time in over a year, the economy showed growth in the third quarter. Many main-stream news programs and financial news shows were reporting that the recession is over. Not so fast. It's a little surprising that financial news programs were making these declarations, since they should be more savvy about what the indications show, versus what is actually the case.

Lest we forget, the portions of the stimulus package which were rolled out over the last 8 months are clearly doing its job in stimulating the economy. So what we are seeing are the results of the (much criticized) steps taken by the Obama administration, under the auspices of the Treasury Secretary, Geitner. The economic growth data was reported by the Commerce Department on Thursday, sending stocks into a much needed rally, following four straight days of losses. Consumer spending for cars and homes amounted to an increase of 3.5% from July through September. That's great news for sure, but it is too soon to break into a Kenny Ortega dance sequence. The stimulus programs, i.e., cash for clunkers, and first-time home buyers tax credit, have artificially induced activity in these sectors. These programs are essentially crutches for the economy to get it hopping along until it can actually go it alone.

The Commerce Department's data showing a decline in consumer spending in September, (which is right after the cash for clunkers program ended), tells the true story about the economy still struggling to get back on its feet. The graph below shows consumer spending in August reaching the same levels of August of 2008.

Although this is encouraging, the September declines are certainly cause for concern for investors and retailers. Nevertheless, Friday’s issue of Investor’s Business Daily reported the increased growth data as “a clear sign that the recession has ended”. They are not alone in their assessment, but it couldn't be further from the truth. Thursday’s triple digit rally was short lived, as the DOW slipped into negative territory during Friday’s trading day. The sell off appears to indicate investors' realization that the so-called “recovery” is superficial, thus not sustainable.

America should put these times of economic uncertainty in perspective: remember how long it took for the country to dig itself into this steep hole, and note that we cannot simply click a “Reset button” to get us out. The country’s economy is moving in the right track, and drifting away from the darkest days of the recession - and no, “we’re not there yet”.

K. Reilly
Cohn-Reilly Report