As Mark Twain once said, "There are three kinds of
lies: lies, damned lies, and statistics." To me, this nicely
sums up recent economic figures that suggest America has escaped
the clutches of another
great depression and is on the way to a
sustained recovery. Government reports say that GDP rose at an
annualized rate of 3.5% in the third quarter compared with the
second. This was the first increase since the second quarter of
2008. However, as GDP grew consumers grew more skeptical as
indicated by a fall in the consumer confidence index. A poll
in
The Economist found that 35% of respondents
think the economy is getting worse; just 28% think it is getting
better. Unemployment is still rising, and even a White House
adviser, Christina Romer, predicts it will remain “severely
elevated” throughout next year.
A lot of the third-quarter GDP growth was the result of temporary
government stimulus like the
cash for clunkers and new home buyer
tax credits (which were recently
extended into 2010 ). Consumer spending grew by 3.4%, the best
since early 2007, largely because people were buying new cars in
July and August under the CARS and
new car tax deduction programs. Sales have since fallen back.
Residential construction leapt by 23.4%, the first advance since
the end of 2005, helped by an $8,000 tax credit for buyers of new
homes. But new-home sales dipped by 3.6% in September, as the
deadline to qualify for the credit loomed. Of course the statistics
the government and Obama administration officials discuss are the
positive ones.
Similarly, the Obama administration released the most detailed information yet on the jobs created by the stimulus . Of the 640,239 jobs recipients claimed to have created or saved so far, officials said, more than half — 325,000 — were in education. Most were teachers’ jobs that states said were saved when stimulus money averted a need for layoffs. Yet many have cited the high unemployment figure, at 9.8 percent, as proof of the failure of the stimulus, which they voted overwhelmingly opposed. This is countered by supporters of expanding the stimulus programs , who say that these payments helped avert a second Great Depression.
Many polls and anecdotal evidence show that most Americans are more worried about the economy more than anything else. After all it hits closer to home than any other macro issue. To appease this, it is likely the Obama will keep the stimulus spigots flowing - case in point, another $250 social security stimulus in 2010. Other programs would extend health insurance and unemployment-insurance benefits by 14-20 weeks for some jobless workers, while providing more food stamps to many struggling families. These measures are ones taken in a struggling economy and not in a robust one.
It’s still too early to tell if growth in the third
quarter reflects the dynamics of a genuine recovery. Until housing
and unemployment show a sustained recovery (3 or more quarters),
it’s premature to say that the country and the world are out the
dark economic woods. While
more stimulus are probably needed to keep economic growth
moving along this year, they will add to an already dangerously
high deficit . The upcoming Federal reserve meeting will
provide an interesting gauge of where officials think the economy
is headed (look for a big stock market reaction on that day), but I
hope that lessons learnt over the last couple of years are heeded.
Statistics tend to provide a partial picture and as we have seen in
the past can vary sharply from one quarter to another.
From a personal perspective, I think it is worth taking a few more
risks as a
long-term investor but still keep up a
conservative approach to managing your day-to-day finances and
career.
