Are We There Yet?


The longest recession since the end of the Great Depression is just about over. Consumers are spending, housing is improving, manufacturing is rebounding, and even the services sector is showing signs of life — or so they say.

But why isn't everyone happy? Simple. A rising unemployment rate is not something that makes people want to smile. Unfortunately, that problem could linger into the first half of next year.

There was some pretty good news this past month. The people at the forefront of business activity — the nation's purchasing managers — are becoming more upbeat. For the first time in a year, the Institute for Supply Management's nonmanufacturing index pointed to growth in the service sector. At the same time, manufacturing remained solid.

And then, there is the new growth sector in housing. True, new home sales moved upward in August, while existing home sales posted a modest decline. But that's not so bad, especially since housing prices seem to have found a bottom.

And the S&P/Case-Shiller housing-price index was up solidly in July, the third consecutive rise in national home prices. Only three of the 20 major metropolitan areas surveyed still suffered from falling prices.

As for consumers, they, too, seem to be changing their tune. In August, spending grew at the fastest pace in eight years.

Yes, "Cash for Clunkers" played a major role in generating the huge increase, but that was not the only reason people parted with their hard-earned cash. They also spent a lot on soft-goods services. In other words, we shopped 'till we got tired.

Unfortunately, it may be tough to maintain these spending gains.

Incomes are increasing minimally, if at all, and people are not saving as much in order to pay for their purchases.

Despite some positive data, surprisingly, consumer confidence didn't rise very much. There had been many stories about the recession being over; even the chairman of the Federal Reserve indicated that a turnaround was upon us.

Normally, this spate of positive news would alter the confidence needle.

However, people are still troubled by the job situation.

Payroll losses are much too high, as another 263,000 positions were cut in September. The unemployment rate rose to 9.8 percent, the highest level since June 1983.

We know that employment is a lagging indicator, so this should not surprise anyone.

The recovery is just starting, and that brings up an important point: Economic numbers rarely move in a consistent pattern. And at turning points in a business cycle, which is where we are now, the volatility is greater.

So don't panic when we get a disappointing report. There are going to be more bumps in the road, but if we steer soundly, we should remain on the path to recovery.

Joel L. Naroff is president of Naroff Economic Advisors.


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