Expect "Better Times" in Late '09 Even as Unemployment Keeps Rising
After months, or maybe years, of doom and gloom, are you feeling strangely optimistic about the economy? Think buying that house isn't such a bad idea after all? You're not alone.
Tuesday brought us more positive news on the housing and consumer front. The S&P/Case-Shiller Index rose 2.9% in the second quarter vs. the first, the first quarterly increase in home prices in three years. And, the Conference Board's consumer confidence index came in higher than expectations. Meanwhile, the S&P 500 hit its highest level of the year intraday Tuesday and has risen about 50% since bottoming in early March.
Economists are feeling cautiously optimistic as well. David Blitzer, economist and chairman of S&P's Index Committee expects "better times in the second half" and he has a "strong sense that the recession is in the process of ending." He cites industrial production - which was up 0.5% in July - as evidence of a turn.
But let's not get too ahead of ourselves.
Many questions remain about the sustainability of the recovery. Blitzer predicts the jobs market will remain weak and the unemployment rate will peak "north of 10%" - even if the Fed continues its expansionary policies.
Before we call the recession dead, one needs more proof housing has not only bottomed but is starting to improve. "Once you get into the beginning of next year housing has got be doing its part to keep this thing going," Blitzer says.
But let's say these green-shoots do start blooming. Blitzer says we're still not out of the woods. The key then becomes the Fed's exit strategy, which Blitzer believes must be done quietly as to not spook the markets. "They don't want headlines 'Fed shifts gears' because that will get everybody nervous," he says, suggesting the risks of a double-dip outweigh inflation concerns, at least for now.