Confidence in U.S. Economy Builds Even as Recovery Still Seems Distant
Tuesday, June 2, 2009
Economists, senior government officials and ordinary consumers are all showing greater confidence in the outlook for the economy.
But three months after signs of hope emerged, the evidence of improvement still exists only in the form of glimmers. A slew of recent economic data and other news, including yesterday's bankruptcy filing by General Motors, make clear that the nation is still muddling through a deep recession.
"A few months ago, the U.S. was in the throes of the most severe recession since the 1930s," said Paul Ashworth, a senior economist at Capital Economics. "We've had some improvement, but . . . we're still nowhere near a meaningful recovery or even a slight recovery."
There are unquestionable signs of economic progress -- stabilization of the financial system, for example, and surveys showing that both consumers and businesses are more confident about the future. But those developments have not been enough to offset profound shifts in the U.S. economy. Consumers are trying to live more within their means, and businesses are still cutting jobs and investment spending as they try to work off the excesses of the boom years.
Financial markets have rallied sharply on promising economic news -- including yesterday, when the Standard & Poor's 500-stock index rose 2.6 percent, to its highest level this year. But the economic news has hardly been uniformly positive.
Even many of the more upbeat indicators come with caveats that make them less than impressive. Yesterday, for example, the Commerce Department reported an unexpected 0.4 percent jump in personal income in April. But the reasons were hardly confidence-
inspiring: The increase was driven in part by a $25-per-week boost in unemployment insurance benefits.
The same report showed that consumer spending fell in April as Americans began saving more. The savings rate rose to 5.7 percent of disposable income, the highest since 1995 and up from 4.5 percent in March.
In a separate release, the Institute for Supply Management's survey of manufacturers revealed more encouraging news than economists had expected; in particular, new orders are growing slightly. But the group's overall index of business activity still indicates that the nation's manufacturers remain in a contraction on par with some of the worst months of the 2001 recession.
The continuing troubles in the auto industry, most notably yesterday's bankruptcy filing by GM, could add further to the nation's economic distress. The company is expected to cut 25,000 jobs by 2010 as it closes more plants and eliminates several brands. It is also shutting down about 40 percent of its dealers. Suppliers will be forced to retrench.
President Obama, in a televised address, characterized those steps as necessary to clear the way for a more prosperous long-term future for the U.S. auto industry. He also acknowledged that those steps would require sacrifice.
"Difficult days lie ahead," he said. "More jobs will be lost. More plants will close. More dealerships will shut their doors, and so will many parts suppliers."