A Recovery, if We Can Keep It
When the January unemployment report showed job creation accelerating and the unemployment rate dropping, I declared it a turn-the-corner moment for the recovery.
The evidence is mounting that the recovery is on -- really, truly on -- as Tuesday delivered four pieces of good news that touch all corners of the improving economy. First, the Dow just hit its highest closing level since May 2008. Second, the number of unemployed people per job opening* fell below 4.0 (from a high of nearly 7.0) for the first time since the end of 2008. Third, consumer borrowing rose by far more than analysts expected in December, we learned this afternoon, which suggests that consumers are rediscovering their appetite for debt. Fourth, Fed Chairman Ben Bernanke testified today that the falling unemployment rate probably understates the weakness of the job market. That sounds like bad news for the job market -- and the job market is indeed rife with bad news -- but it bodes well for advocates of monetary support for the economy. The worse Bernanke thinks the economy is, the more likely the Federal Reserve will consider extraordinary means to keep pushing the recovery into overdrive.
The good news stretches beyond Tuesday's economic reports and testimonies. Joe Weisenthal points out, in a wonderful laconic post, that housing starts (the red graph) and light vehicle sales (the blue graph) are also ticking up. This matters a lot, because big item purchases like homes and cars are coincident indicators that families are confident enough to put a little extra on the credit card. There can't be a true recovery until borrowing becomes (moderately) cool, again. Just as importantly, these figures reflect big fat exchanges of money.
As the graphs unequivocally show, the hole was very deep. But this is a real recovery. If we can keep it.
There are some things that could mess with our good vibrations that we can't control. If Europe falls apart and spooks markets, we'll feel the impact stateside. If there's a war with Iran and oil prices shoot through the roof, we'll feel that one, too. On the other hand, it's possible that neither of these things will happen. And one positive externality of Europe muddling through the first half of the year is that lower energy demands from Europe could keep a lid on global oil prices.
If nothing overseas goes dreadfully wrong, our worst enemies could only be ourselves. Another ridiculous government showdown over something like the payroll tax extension could only give people pause about spending money they're no longer sure they'll have. But as long as the Fed stays pessimistic about the recovery, and electeds in Washington avoid drawing too much attention to themselves, there is a real chance that the winter recovery will be a keeper.
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*Edited.