Recovery Talk “Premature”

The Economy Is No Longer In Free Fall

First Published: May 17, 2009 ADawnJournal.com

As tempting as it is to believe that the economy is well on the way to recovery after the trials and tribulations of the past couple of years, it is important not to just take any sign of improvement as a signal that everything is hunky dory again. The nature of the beast is that we are going to have some false alarms before everything is back in shape, and there may well be people who get caught out speculating in a financial environment that does not do justice to their hopes and expectations. A good example is the recent news that financial indicators are showing positive signs. They are, but that is not the full story.

Data from both north and south of the Canada-US border seems to suggest good news – that the economy is no longer in free fall as it was last year and for the early parts of this one. While this is good news, a stabilization is by no means the same thing as a recovery, and neither is it a guarantee nor even a predictor of immediate recovery. We have had the free fall period, and it was longer than anyone would have hoped. Whether a recovery could even be trusted to be definitive if it were to happen right now is questionable. There is a lot to get through yet before we can confidently herald a recovery. Patience is a virtue. We may have to wait for growth to kick in and be grateful for the recent improvement from terror to stability.

One possible reason for the need to be patient on recovery is that retail sales in the States have fallen. American shoppers have, after a brief rally, retired to the sidelines amid uncertainty over the strength of this new found stability. Without an increase in retail sales there is less on which to base a recovery, as the stimulation of an economy relies quite profoundly on the spending power of its citizens. Not only on their spending power, in fact, but also on their willingness to spend. If shoppers show concern over the ongoing state of an economy, it can make them reluctant to go out and spend, and more likely to save their hard-earned cash. Good and wise for those people, but less so for the economy.

Other indicators which seem to show a lack of immediate recovery include the fact that Canadian airlines are finding it difficult to attract passengers. More people flying is a sign of a thriving economy, as satisfied business individuals reward themselves with holidays that they feel they can afford. As things stand, these individuals are thin on the ground (and in the air) – which, in addition to news of a continued fall in worldwide demand for petroleum oil, points to a low level of economic activity both in Canada and abroad. It is, however, easier and better to approach a recovery from a point of stability. One hopes that this will come sooner rather than later. For the moment the message is “stay tuned”