Are We Better off Now Than We Were 12 Months Ago?
By David Dierking
Depending on whom you listen to and what you choose to believe (if any of it), the greatest recession of our generation finally came to an end about 12 months ago. March 2009 is when the stock market hit its nadir bottoming out at just below Dow 7000. It’s also the point where some economists have suggested that the economy hit its lowest point before turning the corner.
A lot has happened since then. The stock market has gone on a tear and has given people who’ve opened their brokerage account and 401(k) statements at least the impression that the good times have finally returned.
But have they? Taking a look at three commonly used economic indicators paints a mixed picture.
March 2009: 8.6%
March 2010: 9.7%
Conclusions: The one issue with the economic rebound is that it’s largely been a jobless recovery. U.S. unemployment rates shot up to 8.6% a year ago and continued to only get worse peaking at 10.2%. The rate has begun to come back down a little, suggesting that things might have begun improving and employment numbers so far during 2010 have looked more encouraging. Some economists will tell you that a jobless recovery is an empty recovery and that if the nation’s employment situation doesn’t improve we could see the current rally stalling. Keep an eye on this number going forward.
March 2009: Dow 7,608.92
March 2010: Dow 10,856.63
Conclusions: Here’s where things clearly look the best. The Dow is up in excess of 40% over the 12 month period and even more if you start from the March 2009 lows. Investors who’ve remained committed to stocks have obviously enjoyed the returns over the past year as the stock market has experienced a typical post-recession bounce. The question going forward will be whether or not fundamentals will be able to sustain the rally. So far, corporate profits have shown solid growth and GDP is expected to continue to recover throughout 2010. If those two factors happen as expected, interest rates remain low and unemployment subsides, this rally could have legs.
March 2009: -6.4%
March 2010: +2.5% (estimate)
Conclusions: After several quarters of contraction in the gross domestic product, the economy is finally looking like it may be rebounding. As mentioned above, GDP finally started returning to growth in the second half of 2009 posting a 5.6% gain in the 4th quarter alone. The Fed will want to continue to encourage economic growth but look for them to begin raising interest rates back to more normal levels to keep things in check.
One other thing to keep in mind is that this recovery has had two very big things blowing wind in its sails – interest rates that have remained near record lows for a while now and billions of dollars in government stimulus money. The economy has had every reason to begin expanding with the sheer amount of aid that’s been pumped into it to get it going again. Neither of these factors can continue much longer. The strength of the recovery will be measured by how the economy is able to perform on its own without this support.
All in all, it’s still a mixed bag. GDP has begun expanding once again and the stock market has rallied but we’ve yet to see a meaningful jump in jobs created. The economy as a whole appears to be improving but that will be of little solace to those who are still sitting in the unemployment line. Obstacles still remain such as what effect a $1.4 trillion deficit will have and when financial institutions will truly begin lending normally again to spur small business growth.
The good times may not be back yet but at least they’re closer than they were 12 months ago.
Photo credit: gogoloopie
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