On the 80th anniversary of the the Great Crash of 1929, the Commerce Department unofficially
announced that the recession was over by reporting that the economy's GDP expanded by 3.5%, the strongest growth rate in two years.
Were there celebrations in the streets now that the Great Recession has ended? Not so much.
Unfortunately, the announcement still hasn't even convinced Treasury
Secretary Timothy Geithner that the economy has climbed out of its trough. Geithner said that the recession remains "alive and acute," but added that the report is a step in the right direction.
It seems the economy is teetering on the edge of a recovery after two years of diving. On one side of the seesaw, you have personal consumption expenditures, exports, residential fixed
investment, private inventory
investment and federal government spending within the
government's programs (cash for clunkers, the bailouts, TARP, etc). Of course, as
Wall Street 24/7 points out: "Calculating how much of this was from stimulus and incentives such as
cash
for clunkers and housing tax credits is something that will effectively
not be entirely clear until the first revision in a month."
The Big Picture estimates that well over half of the gains are government related, as:
- 1.66 percentage points came from car sales in the form of cash for clunkers;
- Home building soared 23.5%, reflecting a combination of zero percent
interest rates and first-time home buyers' tax credit. That was
good for another 0.5 percentage points of GDP.
On the other side of the seesaw,
leading economic indicators suggest that we are still in recession mode:- The Labor Department reported that jobless claims totaled 530,000 last
week and that unemployment benefits fell to 5.8 million. However, next
Friday the unemployment report is expected to show that the
unemployment rate will reach 9.9%. Most economists
project the jobless rate will exceed 10% by early 2010, according to Bloomberg.
- Consumer confidence reportedly fell to a three-month low this week as unemployment continues to rise.
- Home prices have been on a steady decline. However, the Case-Shiller index reported that prices are starting to recover and may have hit bottom. Household purchases have in fact increased, climbing to 3.4%, the most in more than two years. Yet foreclosures are still increasing, which could account for the rise in household purchases along with the decline in home prices.
What's more, as
The Big Picture reports, "Nominal GDP was below forecasts, thanks to a surprise 0.8% gain in the
deflator (That also added to the REAL GDP figure). Hence, a chunk of
the gains are pure inflation."
The Commerce Department
expects the economy to slowly grow by 2.4% next
year and 2.8% in 2011. So it will take awhile before the tipping point indicates a full recovery, but one has to start somewhere.
- Maria Woehr
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