President Obama’s economic team is cautiously celebrating the appearance of so-called “green shoots,” and trying to figure out whether they will grow into sturdy oaks.
Fed chairman Ben Bernanke, Treasury Secretary Tim Geithner, and White House adviser Larry Summers, among others, are digging into the components of the reported 6.1% drop in GDP in the first quarter of 2009.
And wondering whether to sign on to the Goldman Sachs view that the GDP report is “supportive of future growth despite the deep decline.”
They can see that consumption rebounded by 2.2% as consumers rushed to the malls to unload $200 billion in tax refunds and $100 billion in transfer payments. Important, because this component of GDP is generally considered a lead indicator.
Even more important, Larry Summers’ favorite indicator, inventories of unsold goods, is down, which suggests that it won’t be long before retailers and others have to re-stock, giving manufacturing a boost.
The outlook for investment in capital goods also seems to be brightening. Orders for such products designed to last more than three years – appliances and computers, for example – rose 4.3% in February and 1.5% in March (excluding volatile aircraft orders and defense spending), suggesting that we have at least reached the end of the precipitous declines of earlier months.
These upticks occurred despite a drop in spending by the federal government. It seems that the President’s critics were right when they argued that the $787 billion stimulus package was less designed to give the economy an immediate boost than to fund Obama’s plans for greater government participation in the health care, energy and education sectors.
But the trickle of funds will soon increase, as projects that were allegedly “shovel-ready” are dusted off, bids reviewed, and work authorized.
So far, only two of 16 states have agreed how to spend all of the money they have been allocated for transportation infrastructure projects, and only three states have submitted applications for funds to enable them to avoid laying off firemen, teachers and cops.
Some experts are saying that when the stimulus spending does begin to hit the streets, it will in the end freeze out private-sector spending and reduce long-term growth.
But there seems little doubt that pumping $787 billion into the economy, along with other measures being taken by the Fed and the Treasury, will make itself felt, and probably produce some growth in the current quarter.
Then there is the housing sector. Until recently, the only green shoots were of weeds springing up on the untended lawns of foreclosed and abandoned properties.
Sales of existing homes fell in March, as did prices. Almost half of all sales are of repossessed properties at knock-down prices, we do not yet know how many more such properties will hit the market if some banks end their foreclosure moratoria, and we cannot estimate how many of the 683,000 vacant homes that are not on the market will be offered for sale in coming months.
Still, mortgage interest rates are at historic lows (around 4.73% for 30-year mortgages), sales of existing homes have been more or less stable over the past six months, sales of new homes declined by only 0.6% in March, the supply of unsold homes is down to (a still-high) 9.8 months from a peak of 11 months, and government programs to reduce repossessions have yet to make themselves fully felt.
Finally, several financial institutions feel sufficiently strong to want to write checks to the government, repaying bail-out funds they received and, not incidentally, removing government curbs on their activities — read, pay such bonuses as they feel necessary to retain productive personnel.
Their executives are shocked, shocked, that the Treasury is reluctant to accept repayment, and get out of the banking business.
These are the tea leaves that the judges of the economy’s health are attempting to read. Bernanke has decided steady as she goes, and will continue to print money with which to buy securities, adding to the money supply.
Geithner will pump capital into such banks as fail the stress tests – that is, seem unable to meet a more severe crisis – and into insurance companies, car companies and any other enterprises that Treasury deems too big or too unionized to fail. Summers will continue to muse.
Look for little or no change in policy for the medium term — or until next Friday’s jobs report is published.
Examiner columnist Irwin M. Stelzer is a senior fellow and director of the Hudson Institute’s Center for Economic Studies.