Like a seething insect infestation that grows exponentially if left unattended, the recent proliferation of positive propaganda courtesy of the talking-heads over at CNBC is at best misleading and at worse dangerously irresponsible in its presentation. Many would have you believe that the recession is over, in fact many have purported that not only is the worst behind us but indeed we’re in a new bull market (say what?) and that a prosperous recovery interlaced with growth and renewed consumer confidence is right around the corner.
Quick, pour your money back into equities, and go buy a car, or a house (or both), and take out some new credit cards because you don’t want to get left behind! While I may subscribe to the theory that the worst of this recession has past I do not agree that we’re out of the woods. In point of fact, just because things are getting ‘less bad’ doesn’t mean they’re getting better…
Let’s look at this in several contexts: firstly, credit is still scarce both for consumers and businesses; banks have tightened their lending standards drastically and have raised their risk tolerance levels significantly. Until mainstream credit markets become more liquid one cannot call this a recovery.
Secondly; Q2 corporate earnings were touted as “strong”, and “beating expectations”. Let’s agree that the expectations were set artificially low in the first place, and let’s also acknowledge that profits earned as a result of cost savings are not the same as profits earned from an increase in revenue. You can’t save your way to profitability. At best these “earnings” which are a result of savings from massive layoffs, reductions in capacity and clever accounting entries are one-time events and cannot be repeated every quarter. Until demand for goods and services returns to the market place and corporate earnings are the result of incremental increases in revenues then one cannot call this a recovery.
Thirdly, and perhaps most important, is employment (or lack thereof). The equity markets rejoiced in the “reduction” of June unemployment from 9.5% to 9.4%. Are you kidding me? A tenth of a percent drop in unemployment is by no means a cause for celebration; similarly, the fact that only 250K people lost their jobs last month is equally no reason to call this a recovery. While the unemployment number was less than expected, it only suggests that the pace of job loss is slowing (which is good) but does not show job creation which is a critical component to any recovery.
Unemployment might be bottoming but lets not forget that this economy has shed nearly 7 million jobs and the Obama administration planned their recovery and fiscal budgets on 8.5% unemployment (which they said we wouldn’t surpass) which we’ve blown through like a runaway train. Unemployment is supposed to top 10.5% next year and while, yes, this is a “lagging indicator” in a technical sense it’s still a very real component in a physical sense when you picture the 7 million people sitting at home every day not working.
What I’m trying to say here is don’t believe the hype. The equity markets have come too far too quickly with no reasonable fundamental explanation. Don’t rely on the news anchors alone to tell you this recession is over, and certainly take everything CNBC says with several grains of salt. Until we start to see credit flowing again, incremental increases in corporate revenues based on real demand, and job creation (and not just Government jobs) it is not fair for anyone to call this a recovery.
Sound Off: Do you think the economy is actually getting better, or just less-bad?
