An apparent gap exists among different economic indicators as to the state of the recovery. Surveys of consumer sentiment and home builders both indicated significant improvement in recent weeks. Economists and markets quickly pointed to these surveys as evidence that the economy is nearing the bottom.
Consumer confidence and GDP
These reports though were followed by hard data that were contrary to the surveys. For Consumer Confidence the better-than-expected improvement was countered by a worse than expected drop in Gross Domestic Product and lower Retail Sales figures. These in addition to continuing high unemployment figures.
Builder sentiment and housing starts
This Monday we were encouraged by reports of increased enthusiasm from home builders. The Federal Reserve responded to this and other positive reports to offer cautious optimism that the economy is mending - really an affirmation of the administrations stimulus program.
Today though, we are met with hard data again running counter, with the report that housing starts were down. Part of that data does include improvement in single family housing starts, which could very well be indicative of a turn around.
Sentiment and actual data
It seems as sentiment and confidence surveys are reflecting hopes that the economy is turning, but do those hopes match economic reality? With unemployment still growing and with many of the lost jobs seemingly permanent losses, can the economic recovery be sustained on improving sentiment? Can sentiment continue to improve if the hard economic numbers do not show some consistent improvement?
Recovery plan focused on financial markets
The focus of the stimulus package seems to be to ensure stability in the financial markets, providing massive bailouts with few requirements to large banks. Unemployment is rising. Thirty three smaller banks have closed, with more coming. The major automotive manufacturers are closing plants and dealerships. Even the financial industry is suffering job losses, with American Express announcing cutbacks today.
Today the Federal Reserve announced that money will be available in July to encourage commercial lending. Additional emphasis on finance.
Hope for a recovery is based on encouraging lending, by strengthening banks. We are moving towards big government and big banks. So far efforts to stem foreclosure, to save jobs, to hold on to automotive manufacturing have either not been successful or have been primary. We seem to be conceding that employment loss will continue.
Will the big banks and big government be able to rescue the economy? Is this the right course?