Saturday, September 19, 2009

Weasel Words

The Federal Reserve Chairman, this week said: "...the recession is very likely over." He maybe very likely right, but equally, he may be terribly wrong. When our leaders use weasel words to shade reality it undermines the people's confidence. to react. Personally, I wouldn't run out and bet the farm on the end of this recession. Mark Lieberman, a Fox News Business analyst, pointed out five weaknesses of the Chairman's prognoses:
1) One shot incentives - i.e. Cash for Clunkers makes it appear a lot of activity in the industrial sector will result because of this "demand". However, industrial planners have long learned not to make too big of an adjustment in production in the face of artificial created demand. Result: No new jobs.
2) Skewed numbers in official reports - Lieberman indicates many official Dept. of Labor reports contain data buried in the details that few understand how it impacts the overall report. Statistics can look good, but contain hidden bad news. Most of us don't have the time to delve into the details and depend on a sound-bite from leaders to make us feel good or bad depending on the desired out come. He points out that sales data is especially subject to being misread:
A. Gas sales - heralded as a sign that consumers were once again traveling. No gasoline prices rose by the same percentage as the sales figures.
B. Retail sales - Hurrah! Consumers are back in the stores. No - back to school tax holidays drove sales for a temporary rise in sales.
C. Restaurant sales - Increased sales of not-at-home food consumption rose 0.1% last month. But it is the same situation as gas sales. Food prices rose the same amount.

3) Unemployment - At 9.7% - Still 15+ million can't find work. The rate doesn't take into account those who's unemployment has run out and quit looking for work. Might we add the unemployment rate plus the welfare application rate?
4) Consumer credit - Consumers decreased credit card purchases by 5.2% and savings has risen 5%. The recession can't end until consumers start spending, creating the demand for goods and services.
5) First Time Home Buyers - Again due to special one time incentives, an artificial blip of increased home sales occurred, making it appear the housing market is back on the upswing. Once the incentive money is gone, so will the home sales. Also Lieberman pointed out that who gains in home sales? Not many in the economy, especially if it is a "used" home. It may be good for home values, but will not bring back jobs as in previous years.

So the lesson learned here is to carefully listen to what is not said and don't be jumping for joy too soon. We all hope the economy rebounds soon, but not under false pretenses, please.

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