PONDERING THE "RECOVERY"
In the perennial quest of deciding if the economic glass if half full or half empty, optimists point to last week's spate of reports, most of which offer support for the view that the nation, at long last, is recovering in earnest. Industrial production, for example, advanced 0.5% in July, up sharply from June's 0.1%, reports the Federal Reserve.
Economic data "are telling us quite clearly right now that the U.S. economy has moved on from the recession," opines Patrick Barkey, an economist who writes for the Star Press in Indiana.
The recent buoyancy in economic data has also given the dollar a boost in foreign exchange markets recently. "There's evidence the U.S. economy is growing faster than Europe and Japan, making it easier for the dollar to rise,'' Minoru Shioiri, senior manager of the treasury and foreign exchange operations in Tokyo for Mitsubishi Securities Co., tells Bloomberg News.
But there is always something to worry about on the economic front, and the degree and strength of the current recovery, if in fact that's what's arrived, fits the bill. Pessimists will have no shortage of historical data with which to criticize their cheerful counterparts on the subject. Ground zero for evidence can be found at the Cleveland Fed's Economic Trends for August. Pay particular attention to the document's page 11, which offers four charts detailing the weakness of the current rebound against the historical context. Again returning to industrial production, the current rise is weak in no small degree compared to the average ascent of the past six recessions. Ditto for real manufacturing and trade sales, real personal income less transfers, and nonfarm payroll employment.
The National Bureau of Economic Research dated the end of the recent recession to November 2001. This despite the continued decline in employment, the Cleveland Fed reminds; rising real GDP was the offsetting trend of greater consequence for NBER staffers. "However, this does not preclude the possibility that a new, altogether separate, recession may have begun after November 2001," the Cleveland bank muses, considering the relative weakness of the rebound in the here and now.
If the recession is truly over, confirmation won't be found in rising commercial and industrial loans, which have been falling since 2001. The Fed has been aggressively priming the pump by lowering the price of money in an effort to revive the lending practices that prevailed in the 1990s. But corporate America isn't necessarily interested in returning to the good (bad) old days of profligate borrowing.
Banks, predictably, are eager for nothing less, courtesy of the Fed's monetary inducements. A new Fed report on bank lending practices shows that while C&I loan amounts have declined, banks have eased their lending standards. If the private sector, having learned its lesson from the recent past, is inclined to clean up its balance sheet, bankers are inclined for just the opposite. If a wave of financial rectitude is coming, it won't arrive with the succour of bankers.
But everything financial, even a central bank-inspired lending drive, has its limits. To the extent that nurturing an economic rebound depends on extending cheap loans to the business sector, the Fed has just about reached its limit of monetary persuasion. But corporate America, being a for-profit group of entities with no ability to print money on its own, isn't necessarily inclined to swallow the central bank's medicine. Companies are already holding a fair amount of debt, thank you," courtesy of the previous cycle. Whether that raises cause for concern in assessing America's nascent recovery is a topic to ponder. But at this late date in a so-called post-recessionary climate, it's a point that isn't quickly dismissed.
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