Redstate

By Pejman Yousefzadeh Posted in Economy | Reviving The Economy — Comments (3) / Email this page » / Leave a comment »

Since so much of the recent economic news has been poor, it is easy to make too much of anything that might slightly resemble good news. But perhaps, at long last, we finally have some good news to cheer us.

First, there is the fact that Wall Street is feeling more confident these days:

Despite a drumbeat of bad economic news, the stock market is up -- almost 11 percent in the last few weeks. Junk bonds, those risky corporate IOUs, are rallying. The value of financial shares, bank loans, tricky credit derivatives -- up, up, up. Many on Wall Street, the epicenter of the credit mess, seems to think that the worst is over. For the first time in months, analysts and executives sound upbeat again. Many of them see a broad, sustained recovery in both the economy and the financial markets coming in second half of this year, a prediction some market strategists call hopeful at best.

For now, policy makers are echoing the mood on Wall Street. Treasury Secretary Henry Paulson Jr. said in an interview with Bloomberg Television on Thursday that "we are closer to the end of this problem than we are to the beginning." A report from the Bank of England, meantime, concluded that mortgage securities, which have been at the heart of the financial troubles, probably have fallen too far. The central bank said prices of such securities should "improve gradually in the coming months."

Financial stocks and the broader market surged on Thursday as the dollar strengthened and oil prices fell for the third day in a row. The Standard & Poor's 500 index closed up 1.7 percent, to 1,409.34; the Dow Jones industrial average notched a 89.87-point gain, to 13,010; and the Nasdaq composite jumped 2.8 percent. Another day or two like that, and those market benchmarks will be in the black for the year.

It is a remarkable reversal in attitudes from just a few months ago, when the broader economy seemed relatively healthy but Wall Street was traumatized by billions of dollars in mortgage-related losses. Now, bankers and investors appear ready to look past the crisis to more profitable times, while consumers find themselves in a more precarious position as the job market weakens and banks make it harder to borrow money.

Read on . . .

We're not out of the woods just yet, and in the past, there have been false bouts of economic optimism, as the story notes. Still, financial indicator instruments are quite advanced and it is to be hoped that the optimism currently being felt is not for naught. And indeed, it does appear that it many ways, the economy is holding its own:

The dollar jumped on better-than-expected economic data and the Federal Reserve's apparent resolve to monitor inflation. The Commerce Department said consumer spending rose 0.4 percent in March, more than predicted, and the Institute for Supply Management said U.S. manufacturing contracted in April by a bit less than anticipated.

The readings were not all positive -- consumer spending ticked higher mainly due to rising energy and food prices. The ISM's report also indicated that companies are hurting from climbing costs.

But the dollar, which has recently strengthened after a protracted decline, rallied anyway, pushing the euro down more than 1 percent to $1.5461 in late trading. Trading was thin, with major currency markets in London and elsewhere closed for the May Day holiday, but the dollar's advance helped crude oil fall briefly near $110 a barrel and then settle at $112.52. That alleviated some of the inflation-related anxieties in the market, given that crude recently traded at a record near $120 a barrel.

The employment figures are better than expected as well:

Employers cut far fewer jobs in April than in recent months and the unemployment rate dropped to 5 percent, a better-than-expected showing that nonetheless reveals strains in the nation's labor market.

For the fourth month in a row, the economy lost jobs, the Labor Department reported Friday. But in April the losses totaled 20,000, an improvement from the 81,000 reductions in payrolls logged in March. Job losses for both February and March turned out to be a bit deeper than previously reported.

The latest snapshot of the nationwide employment conditions--while clearly still weak--was better than many economists were anticipating. They were bracing for job cuts of 75,000 and for the unemployment rate to climb to 5.2 percent.

The unemployment rate, derived from a different statistical survey than the payroll figures, fell to 5 percent from 5.1 percent in March. That survey showed more people finding employment than those who didn't.

Cheery news? Clearly not. But not as bad as was feared, either. And remember that 5% unemployment is a very low figure--especially when we consider the fact that we are in a low growth/potentially recessionary period. For purposes of comparison, recall that Bill Clinton got re-elected in 1996 with 5.6% unemployment--something to bear in mind in this election season, as we are likely told that unemployment is the worst it has been since the Great Depression, or something like that.

I am not Pollyannish about the economy. It could most certainly be better. But again, it could also be a great deal worse. And while unhatched chickens should not be counted, there is at least some cause for hope that we have seen the worst of whatever economic downturn we have experienced.

As always, here's hoping I haven't jinxed anything.