Not So Fast: Is the American Economy Really On Its Way to A Recovery?

Is the recession near the end? Is the American economy on its way to recovery? The answer is probably yes. That’s good news, right? Not so fast, say some economic analysts. And they mean, literally, that the stock market may be rebounding a little too quickly.

According to a recent report at Yahoo Finance, the stock market’s rally in recent months is a bit of a mixed blessing. The hope that the economy is on the rebound “has lifted the Standard & Poor’s 500 index, a benchmark for many investments like mutual funds, an enormous 39 percent from a 12-year low on March 9. Those kinds of gains might normally take four years to materialize.”

Both being too quick to call it a recovery and not cautious enough in investing could cause this budding economic upturn to wither on the vine. The numbers remain mixed, with the number of job losses in the month of May are down, but unemployment is up. While the government’s report of 345,000 jobs lost is the lowest since September, the actual unemployment rate is 9.4 percent. This indicates that although less people are being laid off, it is still very tough to find a job out there. In fact, the overall number of job seekers rose as college graduates flood the job markets.

Even Federal Reserve Chairman Ben Bernanke has said, even once the economy begins to recover, jobs will be the last sector to rebound. But there are still other troubling signs out there. Recent Commerce Department data shows that May retail sales were mixed, but in general analysts were surprised that more shoppers hadn’t returned to stores. Wall Street may be throwing caution to wind, but Main Street seems to be holding onto their cash, with the savings rate up again last month.

One of the biggest downfalls of overzealous investing is that investors are helping push interest rates higher. According to Yahoo, investors have been selling off Treasury bills because they feel they are no longer in need of the safety of government debt. This causes mortgage rates and other kinds of loans for consumers to rise. Interest rates are still historically low, but they have been creeping up in the last few weeks. As the interest rates goes up, borrowing is falling off. The Federal Reserve reported last week that consumer borrowing in April fell by twice as much as analysts had been expecting.

The latest results of the AP’s Economic Stress Index, which tracks the economic strains in 3100 counties across the country, show that many areas of the country are struggling more than they were a year ago. “The AP calculates a score from 1 to 100 based on each county’s rate of unemployment, foreclosure and bankruptcy, with lower numbers indicating less economic pain. The average Stress score dipped to 9.7 in April, from 10.3 in March. In April 2008, the national average was 5.9.”

So while most indications show improvement in the economy in the first part of 2009, a slow, steady recovery is more likely to help this nation that has been stressed in so many ways over the last year and a half. After all, exuberant investing is what got us into thismess in the first place.

About the Author

Ki lives and works in Austin and has worked in the Austin real estate market for 10 years. He maintains a search of Austin MLS on his website. It also has general information on Austin real estate and current mortgage rates

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