The Recession’s not over until the fat lady sings

December 18th, 2009

Don’t break out the champagne just yet, the recession’s still here
There are only ten days to go to the end of the year and the US economy, despite an impressive recovery in the past few months, is still knee-deep in mud and mire. While politicians grab champagne bottles to celebrate encouraging unemployment data, great dangers lurk. The first real positive sign in almost two years is the fact that only 11,000 jobs were lost in November. But the real situation is gloomy, and the impetus for the recent recovery is temporary. The main reason for the recovery is the restocking of inventories by retailers.

Businesses
Businesses suffered as consumers cut back spending. Families who saw their home values plunge, their salaries cut or vanish and their pension savings disappear were forced to cut their monthly budgets to the absolute bare minimum while paying debts at the same time. Families like this make up more than two-thirds of the US economy. A cruel spiral began in which businesses facing a dramatic drop in sales stopped spending on inventories and personnel and slashed prices to lure customers. After more than a year of selling only old stock, the businesses that survived had to prepare for the holiday season, which usually accounts for up to 40 percent of yearly revenue. So over the past few months they cautiously ordered more merchandise from their suppliers.

Factories
Factories that had been idle for months needed more workers, mostly temporary staff. An increase in hiring temporary staff is usually the first sign of a true recovery. But the period between that and committing to permanent positions is fraught with doubts, and firms hurry to get rid of the newcomers as soon as bad news reappears.

Stimulus
The massive federal economic-stimulus plan may have succeeded in preventing a collapse of the economy, but Americans will have to pay for their enormous government deficits, the injection of hundreds of billions of dollars and the various incentives for the auto and real-estate sectors that gave an emergency dose of oxygen and kept them alive.

Peanuts
But all that money is peanuts compared to the trillions dished out to the banks starting in March 2008. The leaders of the world’s largest economies tried to convince us that there was no other choice but to bail out those who created this crisis, and that the alternative would be total chaos. We can never really know what would have happened. What we do know is what the policy-makers should focus on now: helping the small businesses instead of the giants.

The White House
It seems the folks in the White House finally get it. They are now committed to saving those small- and medium-sized firms, the backbone of the nation’s economy. President Barack Obama recently declared that $200 billion out of the TARP funds, originally earmarked for banks, would now be allocated for programs to support small businesses.

This entry was posted on Friday, December 18th, 2009 at 9:44 am and is filed under Economy, Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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