A few months ago Ben Bernanke, chairman of the Federal Reserve Board, stated during an interview with 60 Minutes that he detected “green shoots” of economic recovery. Since then many journalists and analysts have been using the phrase and trying to determine if they too see the “green shoots.” But now over three months later, are we really seeing “green shoots” or have we not yet hit the bottom?
Headlines tell us that US economy appears poised to start growing again. The GDP report came out this week and only fell at a 1% annual pace (better than expected). Large banks are reporting profits. Housing had an uptick in sales and prices this week. All these headlines seem to tell us that “green shoots” are sprouting up. But is that really the case?
The media was excited about GDP slipping only 1% this quarter. Is that really good news? The first thing the report reveals is that the first quarter of 2009 GDP was revised from a negative 5.5% to a negative 6.4%, which is much worse than previously reported. The decrease of only 1% this past quarter was impacted by a tremendous amount of governmental stimulus spending. But how long can that last? I guess as long as someone is still buying our debt in the bond market.
But if you continue reading the report you learn that real personal consumption expenditures decreased 1.2% in the second quarter and durable goods decreased 7.1%. Equipment and software purchases decreased 9.0%. That is not positive news! This reflects that the consumer is not spending. Why does that matter? Approximately 70% of our economy is based on consumer spending. If the consumer is pulling back and saving money (or more likely paying down debt), the recession will continue. Further reading of the report reveals even more. Businesses decreased inventories $141.1 billion in the second quarter. They reduced inventory $113.9 billion in the first quarter.
Here is a chart right out of the official Bureau of Economic Analysis release (table 3B). This is the year over year change in GDP.
|
Quarter |
$ Billions |
YoY Change % |
|
2008-Q1 |
13,367 |
2.04% |
|
2008-Q2 |
13,415 |
1.60% |
|
2008-Q3 |
13,325 |
0.03% |
|
2008-Q4 |
13,142 |
-1.86% |
|
2009-Q1 |
12,925 |
-3.30% |
|
2009-Q2 |
12,892 |
-3.90% |
It is hard for me to see many “green shoots” when I read the report from BEA or when I review the above graph. It is hard for me to see many “green shoots” when I watch our deficit this year grow to $1.8 trillion or when our government takes $235 billion to the bond market just this past week (this is how our government prints money) or when real unemployment is at 16.8 percent. I could continue and talk about the commercial real estate market, but that is an entire blog post all to itself.
I would love to hear your perceptive on the economy. What are you hearing and seeing? Is the stock market overvalued based on “green shoots?” Someone please tell me I am way off base and our economy is going to start growing soon, that these huge deficits our government is running will not impact growth, and that they will not result in large tax increases for everyone (further slowing the economy). Someone tell me that passing the current health care bill and passing “cap and trade” will not inflict further harm on the economy?
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