Is economic recovery in jeopardy?
Posted
May 14 2009, 10:18 AM
by
Andrew Rosenbaum
Rating:
What happened to our economic recovery? Recovery was supposed to be right around the corner, right?
The Federal Reserve and Treasury Secretary Timothy Geithner keep telling us that things will definitely get better soon -- the Fed says growth should start in the third quarter of this year.
But the most important indicators of that recovery are going in the wrong direction. Retail sales are down. The housing market is stagnant. Mortgage rates have moved higher.
Where are those "green shoots" of recovery that Fed Chairman Ben Bernanke is always talking about? Have they gone brown?
That phrase about "green shoots" actually comes from Bernanke's March 15 interview on "60 Minutes."
And since that interview, the phrase has been picked up by economists and analysts all over the world. (Try a search on the term and see how many references you get.)
But today, the green shoots aren't flourishing anymore, and it’s looking like the recovery may genuinely be in danger.
- Retail sales dropped 0.4% in April, according to a Commerce Department report. They had been up about 1% in January and in February, and that was one of those green shoots that everyone was talking about.
- Home foreclosures were up 32% in April from the same month in 2008. This has placed a glut of houses on the market, keeping home prices down. The Case-Shiller Index of housing prices in 20 cities showed an 18.6% drop in February from the same month in the previous year.
- Consumer sentiment is still close to record lows. The Reuters/University of Michigan Consumer Sentiment Index is still 33% below pre-recession levels. "Consumers' expectations for their financial situation are dismal," warned Richard Curtin, the survey's director.
- Mortgage rates have gone back up over 5%. The number of mortgage applications is decreasing.
So is a recovery in jeopardy? The outlook is grim, but it’s not without hope. The cost of borrowing money has gone down and banks are trying, although without much success, to lend more.
After the stress tests, fears for the future of the nation's banks have eased. There is little danger of another huge financial disaster sending the stock market through the floor and causing the international credit system to freeze up as it did in 2008.
But we probably shouldn't expect recovery to be just around the bend. There are a few green shoots, but they ain't poppin' out all over.
You might want to keep an eye out for them after the summer.
