Wednesday, August 25, 2010

Where Are We?

Are we in an economic recovery, stuck in a period of below average growth, or headed for a double-dip recession? Let’s look at some more of the traditional and non-traditional economic indicators to find out.

Kicking the Bucket

There is a business district close to where I live that has been devastated during this recession. The only company in this area making any money is the one making the “For Lease” signs. Right in the middle of the district is a coin car wash. For around $4 worth of quarters you can soap, rinse, and wax your car. There were always prominent signs at the car wash that said “Bucket Washing Strictly Prohibited”. If people use buckets to “hand wash” their cars before rinsing, they take up space without spending more money and increase the waiting time of other customers. So recently I was shocked to see a large sign beside the car wash proclaiming “Bucket Washing Welcomed”. This is an act of desperation. This is the equivalent of a Baptist church advertising “Bring Your Own Bottle”on Sunday morning. If people don’t have enough quarters to wash their cars, things can’t be good.

Bottoms Up

Speaking of bottles, Ohio just announced that hard liquor sales were up strongly in 2009 and still steady in 2010. A spokesperson claimed that this is in no way related to people drinking more due to the state’s double digit unemployment rate. Of course this is a contributing factor, they just won’t admit it. But a bigger reason is that more people are saving money by drinking at home instead of in bars.

Eating In

Not only are people “drinking in”, they are also eating in. The latest data from the restaurant industry show that sales are up some from the bottom in 2009, but still weak. Discretionary income is still tight and people are not increasing outside meals. It is speculated that many restaurants are losing money, but are holding on and hoping business picks up soon.

Basket Case

Charitable giving continues to suffer. Reports from several churches show that giving is actually down from 2009. Unemployment remains high and people with jobs are being very conservative with their money.

Still Cutting

Companies continue to cut workers. My daughter became a victim recently when the call-center where she worked reduced manpower. Even in good times companies reduce workers, but in a recovery there should be plenty of new jobs for these people. Now they just join the 14 million other job seekers competing for the few new jobs available. One local job seeker group has actually grown in membership the past few months.

Temporary Workers

Temporary workers are increasing. This is good news and is usually the first sign of an economic recovery. The way it is supposed to work is that companies hire temporary workers until they are confident business is increasing. They then hire these people as standard workers and hire more “temps”. This time they are hiring temporary workers, but are not making these workers “permanent”. I do not believe that businesses have confidence in the government to effectively manage this economy. A friend of mine says he gets more nervous every time he hears Timothy Geithner speak.

The Sound of Silence

There is a landscaping material business close to my house. The sound of the digging equipment is audible from my house and it always been very busy in the spring and summer months, 6 days a week. But this year, there has been no work on Saturdays and it has also been quiet sometimes during the week. People are spending less money on their homes as property values continue to suffer.

The Rest of the Best

It is interesting that a multitude of economic indicators show an increase of only 1-2% versus a year ago. That was when the recession was ending. That means we have not moved that far from the bottom, which helps explain the lack of job growth. In addition, the experts expect Q2 GDP to be revised downward (not upward as I anticipated). This means the top economist were totally baffled by the Q2 results which is consistent with my belief that some economic indicators are giving false readings due to the unusual conditions.

So Where Are We?

Most of the indicators previously discussed reflect a very slow economy. There are no reliable trends and few reliable leading indicators at this time. Economists will still be analyzing the last three years of turmoil, twenty years from now.

The Model “T” still says no double-dip recession, but a long, slow, climb up a steep hill. This definitely can’t be called a recovery, but the conditions are unusual and economists are struggling to understand where we are. And if you don’t know where you are, you can’t know where you are going. More on this next time.

1 comment:

  1. Interesting recap.

    As someone that understands "Business 101" in addition to Econ 101, you are aware there is no recovery. Relaxed, tanned, and ready to rock, the Prez has decided NOT to comment on the economy or jobs. It is off to the Gulf for some old fashion mud throwing... he was too busy organizing his community (in 2005) to remember that the Mayor of New Orleans explicitly told his city to ignore the warnings to leave the area. Selective memory I guess.

    As always, companies that understand their customers are doing just find. Like Apple, salesforce dot com, and Netflix to name just three.

    There has never been a better time to take control of your future. More fortunes are created in these times than the boom years. Unless of course, you are waiting on the government to "make it all better."