This recession has been long and hard on many Americans. The American economy continues to be a consumer-driven economy and the signals are very mixed as to whether the average consumer is opening his wallet to spend again.
In fact, many economists now believe that families that do have extra funds are saving them rather than spending, and thus not stimulating the economy. While this saving is smart for families and positive in the long-term for our economy, the short-term effects are not so pretty. Without consumers loosening their purse strings, we risk a stalling-out of the positive effects of government injection of capital.
In a perfect situation, President Obama’s stimulus plan would have created new jobs quickly, causing the average consumer to spend, which in turn would cause the consumer economic pump to be primed. Once the pump started creating goods, new jobs would be created, which would cause more consumer confidence. With more consumer confidence would come more consumer spending and the cycle would continue into recovery. This type of economic bottoming-out and recovery would form a v-shaped pattern if you were to chart it on a graph — with one point marking the worst of the crisis.
The Obama stimulus plan was designed to create many new jobs quickly. That hasn’t happened, though the U.S. and other governments around the world are pumping large amounts of stimulus money into our and other world economies. Obama’s stimulus plan was to have saved or created nearly 700,000 jobs within 200 days of being passed, but there really isn’t evidence that even a fraction of that number has been created. As of today, we are approximately at the 120-day mark.
By the end of May 2009 the U.S. Department of Transportation (DOT), which was one of the first government agencies to release funds as part of the stimulus plan, estimated that fewer than 7,700 jobs had been created or retained in its area of responsibility. The DOT . Other U.S. agencies have reported similarly anemic numbers. By July 2, unemployment had jumped to 9.5 percent, which makes it the highest since August 1983. I am thinking the White House mathematician needs to go back to grade school to learn how to add and subtract. Considering the number of people who have exhausted unemployment benefits and who are thus not being counted in the unemployment numbers, and who are not looking for work, the real unemployment rate is estimated to be 16.5 percent.
Still, independent economists are predicting some recovery this summer and more next year.
With all this continuing mixed news, the consumer hasn’t really started spending in the necessary fashion for the economic pump to start churning out durable goods and new jobs. This means we are now at the risk of a stalling of the recovery. If the economy stalls out after some mild recovery and then shows signals of declining again, our economy and perhaps that of the entire world will have a double-dip, forming a w-pattern on the graph.
On July 6, 2009, Vice President Joe Biden spoke about job creation and maintained that the administration “misread” the seriousness of the economic situation in the early days of its administration. Acknowledging that the stimulus plan has not created the number of jobs that it was designed to, Biden assured his audience that jobs would come “soon.”
Let’s hope Vice President Biden, President Obama, and the White House mathematician can get on the same page and figure out how to avoid making a big “W” mistake.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
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