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Message: Is It Really Getting Better???
From MSN Money:
How to tell when the recession is over
Economists may being feeling upbeat, but millions of Americans won't believe the economy has turned until their finances improve -- and they haven't yet.
By Rick Newman, U.S. News & World Report
There are two kinds of recessions: the one economists measure and the one ordinary people feel.
The official recession is over. That's because the economy is growing again after a sharp decline, with GDP back to the levels of mid-2008. For people who have kept their jobs, suffered no loss of income and enjoyed a rebound in their investments thanks to the year-long stock market rally, things are pretty good.
Then there's the unofficial recession, which clearly persists. More than 8 million people have lost their jobs over the past two years, and the economy has barely started to add those back.
Many others have had their pay or hours cut. The housing bust, in its fourth year, still isn't over. Foreclosures continue to mount, businesses and consumers remain gloomy, and many families are struggling to get by on reduced income. "It's a recovery, but it sure doesn't feel like it," says Nariman Behravesh, chief economist for forecasting firm IHS Global Insight.
Here are five things that still must happen for a robust recovery to kick in:
Banks need to lend more
The government's emergency measures helped stabilize the financial system, but banks haven't taken the next step and increased lending. With trillions of dollars in bad loans still on their books, many banks continue to hoard cash and turn down loan applications. That depresses the market for homes, cars, appliances and other costly items that many consumers can't pay for in cash.
It also squeezes small businesses, which often rely on credit to meet payroll, order supplies, invest and grow.
Is the Recession Over?
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Since many families still have the majority of their wealth invested in their homes, the economy can't really get healthy again as long as such a huge asset is falling in value.
The end of the federal homebuyer tax credit and other government programs throughout the year will test whether the housing market can stand on its own. If it can't, the government could step back in, but that would signal further weakness in a sector that accounts for more than 15% of the economy.
The silver lining is that falling prices make it a great time to buy, for those with enough cash or the ability to get a mortgage.
Confidence needs to rebound
Americans remain gloomy, with most consumer-confidence surveys showing only modest improvements from the lows hit during the recession. The most obvious reasons are the weak job market
and a sense that the recovery will be weak at best.
Businesses are downbeat too, with CEOs worried that strapped consumers will put their wallets away. That makes them reluctant to hire, which perpetuates the malaise.
Confidence is a perplexing psychological phenomenon, and economists aren't sure what it will take to make consumers upbeat enough to propel a robust recovery.
But once home prices stop falling, jobs seem more secure and people feel like the bloodletting is over, that will certainly help.
Jobs need to return
The availability -- or lack -- of jobs is the single biggest factor in the economy, and unfortunately, a pickup in hiring is likely to be painfully slow.
Many of the 8 million lost jobs are probably gone forever, as manufacturers downsize their operations and many companies substitute technology or cheaper foreign labor for American workers.
The unemployment rate, which is 9.7% now, might even rise throughout the year, as workers who gave up looking for jobs try again and the labor force swells.
Still, economists recognize some familiar patterns in the job market that suggest things are finally getting better instead of worse. Corporate profits are strong, thanks to aggressive cost-cutting over the past two years. That means companies can afford to hire workers, should they decide to.
And productivity gains have hit record levels recently, which means companies are extremely efficient; if demand picks up, they may be able to meet it only through increased staffing.
A good indicator of real improvement would be several consecutive months of six-figure job gains, due to permanent hiring and not temporary factors like the census or weather-related events.Jobless claims rose again this week, showing that employment growth won’t come without setbacks. Yet analysts remain optimistic about hiring. "The recent resumption of employment growth will be sustained and gather strength over time," insists T. Rowe Price chief economist Alan Levenson.
That's not the kind of roaring endorsement most Americans want to hear, but it suggests that sooner or later, the recovery in your neighborhood will catch up with the one that economists see in the data.
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