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10/19/2009

The End of The Recession? Don’t Be So Sure.

 

There is little that delights a politician more than being able to state that a recession is over.  But much like trying to identify when a recession starts; it is difficult to determine when one ends.  Because many scales in the economy move in different directions, when one thing gets better, some other things remain stagnant or even get worse.

 

Everyone’s favorite yardstick is the US stock market.  Indeed the market has its fingers in many pies.  Stocks can be sold for cash or used as collateral for operational loans.  Stocks are where most Americans have sunk most of their retirement savings so when stocks rebound Americans get a bit more confident. In economics “confidence” is a code word for “more spending” and “more spending” means more people need to be hired to paint your nails, sell you a plasma TV and mow your lawn.  The market’s rebound then, offers a little to be excited about.


A little.

 

The thing to watch in this supposedly-soon-to-be-over-recession is unemployment.  High unemployment is a heavy ax that cuts into that ballooning confidence that an equities rebound creates.  If you don’t have a job you won’t spend much.  Even if you do have a job, high unemployment still scares you because that means there is a dude or a dudette out there who is willing to do your job for $5000 a year less.  So with your job hanging by a string, you hold onto your cash almost as much as your unemployed neighbor.

 

The message here is keep an eye on your spending and your long term commitments.  Save as much as you can (timeless advice even without a recession around.) 

 

 


 

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