Almost every analyst or forecasting group of any substance has offered opinions over the last few weeks, regarding the performance of the economy for the last half of this year. Paul Krugman, Alan Greenspan, Paul Volker, and several other members of the Fed, posted their forecasts. The CBO and FOMC issued long reports weighed down with unimaginable data and their projections.
Some economists see a recovery by the beginning of the fall and others see it coming early in 2010. There is a near certainty that the nausea inducing drop from the fourth quarter of last year through March is over. It is either over because of the economy’s natural resilience or the money poured into the economic system by the Fed and other central banks. Before anyone figures out for sure why things have started to improve, it will be too late to matter for anyone other than the historians. There will be another financial and market catastrophe in the fall, if none of the remedies has worked. The question of what caused the recession and how it can be vanquished will become a global obsession, again.
The summer will seem unusually long for businesses, people out of work, the Fed and the Treasury, and the tens of millions of Americans who have a direct stake in an economic recovery. The normal slowing of economic activity during the summer season will make any progress seem like walking through water. The seasonal drop in real estate markets could increase the fear that this sector is in worse trouble than it really is.
Along with the languid release of data there will be four unemployment reports that cover May, June, July, and August. These will be the four most important economic indicators of the summer. They will show whether the government stimulus package has been even modestly successful, whether there will be consumers who can shop during the holiday season that now seems to start in September, if there are buyers to participate in the struggling car markets, and citizens who can be taxed rather than being a tax on the federal and state governments. The news will be particularly bleak if the economy sheds more than 500,000 jobs in any of these months. A plunge of that magnitude in every month could push unemployment to double digits with only eight months of the year gone.
The other important and relatively new economic concern for the summer is oil prices. OPEC has not been clear about what it will do with supply. The Saudi’s have spoken out for keeping it unchanged and because of the size of their output they usually rule the day. Speculators still seem prepared to trade crude above $60 on most days. A fair number of analysts see oil moving to $70 or $75 by Labor Day. The cost of a barrel of crude will move up if there is strong evidence that the demand in China is growing. Ironically if there are signs of a sharply improving economic picture in the US, oil could move up more than most traders expect.
Oil prices could still block a recovery. Just a month ago, no one believed that gas could possibly hit $3. A heavy summer driving season and forecasts of a cold winter in the northern hemisphere would transform the psychology of crude trading and make the majority opinion that oil will rise throughout the year, whereas in the early spring nearly everyone was convinced that it would fall.
The summer is normally a bit of a break, even for the downhearted. This summer won’t be like that for most Americans. It will be an anxious four months as people watch the infrequent signals that may tell them how 2009 will end. It is a bit like Greek seers interpreting the flights of bird patterns for information about the future.
Douglas A. McIntyre
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