Are We Done Yet? (sans Ice Cube)

After I presented my policy in class on Wednesday, I was met with an interesting question from Mitch. He asked (excuse me for paraphrasing) that, given the fact that the economy is already on the way back up, musn't I conclude that the New Keynesian policies have worked?

To my dismay, I didn't have time to give a full answer. I merely said that, if he were right, perhaps Austrian schoolers would need to rethink many of their objections to Keynesianism. However, that is a big, big if.

There are a series of indicators, both positive and negative, as to the health of our economy.



The positives:
-Q1 profits for firms like Goldman Sachs and Wells Fargo have been stellar. Wells Fargo posted what I believe was their biggest first quarter profit in history, $3 billion.
-The stock market has seemingly leveled out. After months of free fall, the Dow seems to have bottomed out. It has been hovering between 7500-8200 for a few weeks now, rallying for a few days and then taking another dive.
-Builders have marginally renewed confidence.
-New jobless claims fell for the week ending on April 11. This number fell 53,000 to 610,000. This is considered to be a good indicator of recessions' ends

The negatives:
-Unemployment is still on the rise. Unemployment was 8.5% in March and will likely rise again in April. New jobless claims have been volatile. This sharp decrease could have reflected seasonal hiring for a late easter.
-Building permits fell 9.0% for March. They had risen 6.4% for February and were expected to only decrease by 2.5%.
-Retail sales were expected to increase by 0.3% in March. However, they fell 1.1%. Consumer confidence is still low.
-Credit fell as business lending dropped 24 percent at 21 banks that have received more than $211 billion from the government. Auto and student loans have also fell. The only thing that hasn't fallen is mortgage lending.
-Foreclosure filings spiked by 17 percent from February to March. This exacerbates the fear that banks will dump the foreclosed houses on the market, drastically lowering home prices.

So, allow me news a little. Profits from Wells Fargo and Goldman Sachs are encouraging indeed. Hto dissect this owever, these companies were relatively stable before they received bailout money. With the government funds they received plus their already solvent and profitable business, profits were expected (however, not this high). The only real indicator of the recession's end has been the drop in new jobless claims. Economists rely on this data to predict the end of recessions. However, these claims are volatile. They likely reflect both the later Easter and an unwinding of pronounced layoffs in the automobile sector. The housing data is much less promising. February was a fantastic month of statistics for housing. Housing starts were up. Foreclosures weren't too bad. However, foreclosures spiked massively in March. People still aren't buying retail goods. Banks still won't lend to businesses, students, or families. And unemployment is still on the rise.

Recession over?

Not yet, Mitch.