Why the Economy Isn't Quite as Bad as It Seems
Rob Silverblatt and Ben Baden
5 bright spots in the economic data
The wobbling housing market can barely stand on its own two feet. Lackluster job growth and depressed consumer spending are dragging down an already-fragile recovery. And across the Atlantic, a debt crisis is testing the resolve of national governments. With the economy facing a veritable laundry list of crises, the current outlook leaves little room for optimism.
"We've got these big holes in the economy with not a whole lot offsetting it, leaving us with an economy that's improving and is likely to continue to improve, but not all that much and not all that fast," says
Meanwhile, the dramatic recovery, which saw the stock market outrun the real economy on the back of a wave of optimism, has largely petered out. As economic indicators continue to deteriorate, some have sounded the alarm that a double-dip recession could be approaching. But even as the possibility looms that the economy could slide back into recession territory, economists are still by and large betting against it. Lifted by a handful of bright spots in the otherwise bleak economic data, the prevailing sentiment appears to be that the ongoing slump is just a bump in the road.
"While there's been lots of double-dip talk here, I believe what we're really experiencing is just a soft spot," says
This possibility -- that the economy is normalizing as recovery slowly gives way to business as usual -- is, of course, the best case scenario in a long list of eventual outcomes. Still, there certainly are some positive factors to support it. Here's a look at five of them:
High earnings forecasts. Earnings season kicks off this week, and it's important to see if businesses are growing earnings at a rate high enough for them to begin reinvesting in things like new equipment. "Corporate earnings are critical," says
White believes we could see the highest earnings ever reported by
During the recession, businesses slashed their operating costs, which put a damper on new-product creation. White expects the situation to improve in the second half of 2010 as competition forces businesses to invest in new designs. "During the recession, you went out of business if you didn't stop spending," he says. "Now you're going to go out of business if you don't start spending, because your competitors will put you out of business. The good companies are beginning to make that transition now, and it's going to force their competitors to make that transition too to keep up."
An uptick in business spending would reverberate throughout the labor market. "There's a direct correlation between that spending and more job growth," says
Rock-bottom interest rates. To help encourage lending, the Federal Reserve has kept the target range for the federal funds rate -- what the Fed charges banks to borrow money on a short-term basis -- between zero and 0.25 percent since
Low interest rates should make credit more accessible to consumers and businesses. "By keeping these interest rates very low ... you really have the capability of being able to borrow money and put it to work and probably put it to work quite handsomely," says
Fewer layoffs. To be sure, most news on the jobs front is quite dreary. In the aftermath of a recession that wiped out 8 million jobs, Americans have been anxious to see signs of robust improvement in the labor market, only to be disappointed by the tepid rate of growth. Confidence eroded even further when the government announced that more jobs were lost than were created in June. While this was largely expected -- as temporary census workers were finishing up their jobs -- it marked the first time this year that the economy had shed jobs.
Even so, the news isn't all bad. For instance, new jobless claims fell by 21,000 the week before last, beating expectations and driving the number of new claims to a two-month low. Meanwhile, the rate of layoffs appears to be slowing. Planned job cuts for the second three months of the year decreased 63 percent from the same period last year, according to the firm Challenger, Gray & Christmas. "While some may question the sustainability of this recovery, the dramatic decline in planned layoffs ... certainly suggests that the nation's employers are not anticipating a double-dip recession," the firm said in a release.
These statistics, of course, offer little respite to the millions of Americans who are already out of work. But for those struggling to hold onto their jobs, they offer some hope that the worst payroll damage has already been done.
To assess the stability of their financial system, European banks are now undergoing "stress tests" similar to the ones that were run in
Exports. After an encouraging run, exports have painted a mixed picture as of late. On the one hand, a strengthening U.S. dollar has stalled exports to
Even if exporters aren't booming, they're still outperforming other segments of the economy, says Goldstein. "With an economy growing by maybe 2.5 percent, the fact that exports are growing [several] times faster than that is good news in a story otherwise devoid of very much good news," he says.
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Why the Economy Isn't Quite as Bad as It Seems
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