Thursday, August 06, 2009

Something to keep in mind when hearing reports of upticks in factory orders or consumer spending or reductions in the rate of layoffs...

It isn't so much that the economy is improving - at least as far as how people usually think of an improving economy - as that consumers and businesses are backing away from their doomsday scenarios. With all the doom and gloom last fall (and noticeably, a total lack of any coherent counter) a lot of people and businesses did the financial equivalent of going to the mattresses; fearing that even worse conditions were in the not-too-distant future, they cut discretionary spending and even delayed purchasing necessities, businesses laid off workers, many in advance of the expected economic collapse, and cut back investment spending... all in excess of the cuts they would have made if the prognosis wasn't so dire.

And as the worst case scenarios didn't come to pass, consumers and businesses have let off the brakes a bit... and in doing so, are lifting the indicators ahead of where they were last month and the month before that.

And in coming months, we'll probably see reductions in the number of layoffs... not because the economy is improving, but rather because businesses are no longer under pressure to reduce staff ahead of the depression they no longer see in the future. We'll continue to see boosts in auto sales... not because people are making more money and looking to spend it, but rather because of individuals who would have bought a new car but held off thinking that they were going to lose their job and home. The same will hold true for vacations and other forms of discretionary spending... we don't have more money than we did last month, we're just starting to relax and thus are more comfortable spending the money we do have.

And when Obama (invariably) tries to take credit for the 'improving' economy, remember it isn't because of anything he has done, it is because people no longer believe the economy is going to crash... so ask yourself how much Obama has helped people get more comfortable, less fearful.... and my answer is not much at all, not much at all.