Consumers' gloom subsides, but enough to lift the economy?

Shoppers' confidence is higher so far this month. Other data deliver a mixed message as to whether the economy has hit bottom yet.

Mary Knox Merrill/Staff
Pedestrians converge at the Downtown Crossing shopping center in Boston. Consumer sentiment in early April is at its highest level since the Lehman Brothers bankruptcy in September, a new report found Friday.

Green shoots? Yes, there are a few. But for the US economy as a whole, it's still winter.

Positive signs, such as April's surprising jump in consumer confidence figures, indicate that the worst of the recession may be over. National economic activity now could be shrinking less quickly than at any time in months.

But even optimistic forecasts hold that recovery won't begin until, perhaps, July. That means there are more job losses, more foreclosures, and more bankruptcies to come.

"We're sort of moving sideways here . . . it's too early to give the green light for economic recovery," said Wachovia chief economist John Silvia in a recent analysis.

It's true that recent days have seen some better-than-expected economic news, in the sense that some data indicate the brutal downturn of 2008-2009 is no longer accelerating.

The number of Americans applying for first-time unemployment benefits unexpectedly dropped last week to the lowest level in three months, the Labor Department said Thursday.

On Friday, both Citigroup and General Electric Co. released first-quarter results that beat analyst predictions – though Citigroup lost money, and GE's profits fell.

And while housing starts have fallen, construction of single-family homes has showed signs of stability.

Perhaps most important, consumers are feeling better about their prospects. On Friday, the University of Michigan released figures showing that its preliminary index of consumer sentiment rose in early April for the second period in a row. This closely watched measure is now at its highest level since Lehman Brothers went bankrupt last September.

That's good news – but it may not presage a sudden resurgence in retail activity, according to one expert.

"While consumers cited the widespread availability of discounts as a positive, a majority of consumers reported that their financial situation continued to worsen," wrote Brian Bethune, chief US financial economist of IHS Global Insight, in an analysis of the figures. "Income growth is expected to be meager, and households are saving larger shares of their incomes."

In general, economic indicators now are not so much good as less bad than they have been. Things are getting worse more slowly – meaning that the bottom of the recession may be at hand.

Recent news marks "an improvement but it does not change our view that the recession will drag on through late this year," concludes a Wachovia Economics Group analysis.

Some experts say things might get better a bit more quickly, and that when they do, the recovery will be rapid.

Adam Posen, deputy director of the Peterson Institute for International Economics, predicts that the US will see positive growth by the fourth quarter, or possibly earlier.

"Unemployment will probably continue to rise for a good six months after that, but the bottom will soon be found," said Mr. Posen in a recent report on the state of the economy.

Policy measures taken in the name of fiscal stimulus are beginning to have an effect, or will soon, according to Posen.

It's also just hard to keep a modern economy down, unless the nation in question is Zimbabwe or North Korea.

"If you're an economy with rule of law, property rights, [and] basic market structures, the nature of things is they tend to bounce back," wrote Posen.

Finally, the collapse of housing starts is creating a built-up demand for new homes, according to Posen. In some wide-open areas, such as Nevada, overbuilding means that construction will be flat for a long time. But along the coasts, where space is limited, demand may drive an earlier housing recovery.

"So, those three together – the policy, the fundamentals, the housing recovery – I think all contribute to the growth we're going to see in the next several months," he said.

You've read  of  free articles. Subscribe to continue.
QR Code to Consumers' gloom subsides, but enough to lift the economy?
Read this article in
QR Code to Subscription page
Start your subscription today