The newest reports of economic indicators expose conflicting trends in the health of the world’s economy. Fed Chair Ben Bernanke cryptically described the activity as a series of “fits and starts” and “green shoots,” providing little confidence in future growth and even less confidence in Bernanke’s understanding of the mercurial conditions pervading the economy. (Daily Finance) While optimism among pundits rose with last week’s 1.7 percent increase in the Dow Jones and 1.3 percent increase in Standard and Poor’s 500 (UPI), most signs of sustainable growth continue to lag: The first quarter realized a 6.1 percent decline in Real GDP, the nation’s third largest automobile company declared bankruptcy, and data to be released Friday is expected to show another increase in the unemployment rate. Even the new Dow Jones Economic Sentiment Indicator, designed to respond to fluctuations in consumer and investor confidence levels, remained stagnant after the stock market gains. (Wall Street Journal)
The Economist credits the stock market bursts to yet another false promise. According to the magazine, the newest increases represent the 5th time since the recession started that the economy has shown signs of life; in each case the apparent rally has failed to produce lasting strides toward recovery.
The confusion should make us cautious of proclaiming economic salvation. We should not, however, expect the confusion to inspire consumer or investor pessimism. Prices in commodity markets remain low and the government bailout plan will continue to inject financial capital into all corners of the economy. So while we would be foolish to begin celebrating the end of the recession, we should not be surprised if the stock market steadily recovers with a streak of small growths.
Finally, we should not credit better numbers with either government intervention or the natural causes of business cycles: since long-term economic indicators continue to lag, no person, group of people, or economic force deserves praise for an economy that is not actually recovering.
The fact that there is a stock market rally isn’t indicative of economic performance in the present, but rather expectations about future economic performance. Stocks are investments, and investments pay off in the future, not the present. The current stock peak predicts that economic recovery will be in full force at the end of 2009 and the beginning of 2010. Recent troughs have resulted when predictions have moved more towards the end of 2010. But no one, actually, is predicting anything sooner than Q4 of 2009, no matter how high the stock market bounces
And one thing is for sure: politicians will claim complete responsibility for the recovery, no matter when it happens