Posted on April 16, 2009 - by Venik
Glimmers of hope
Recently there has a lot of talk of Obama’s “glimmers of hope” in the US economy. This tentative optimism hinges precariously on the small stock market gains in the past few days. Companies across the country are cutting production and inventories and the expectation is that eventually this will spur some consumer demand. This is a classic example of a circular argument, if you ask me. The bottom line is: the increase in demand caused by the drop in inventories will not come anywhere near compensating for the decline in production.
The key to economic prognosis is unemployment data. Some economists point out that the stock market growth often preceeded a decrease in unemployment. While this is true, it is also true that even more often stock market gains were short-term and had little effect on the overall economic decline. So far, growth in unemployment shows no signs of slowing down. The April numbers are due to come out in a couple of weeks. If the increase in unemployment is 0.3 or less, then there may be some room to talk about glimmers of hope and such, while nervously awating the numbers for the statistically most significant month of May. For now, however, we should refrain from looking at anything glimmering.
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