TOPICS > Economy

Across the U.S., Shaky Signs of Economic Recovery Emerge

November 23, 2009 at 12:00 AM EDT
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A flurry of economic reports lately paint a mixed picture of a U.S. economy showing new growth, despite mounting job losses. Ray Suarez speaks to experts for a snapshot of just how well the recovery is faring.

JIM LEHRER: Signs of recovery appeared in parts of the economy today. The National Association of Realtors reported, sales of existing homes were up more than 10 percent in October. They hit the highest levels in two-and-a-half years. The industry was spurred in part by a tax credit for first-time buyers.

But there was less encouraging news about automobiles. The closely watched Fitch Ratings service predicted only a marginal recovery in the industry next year. Wall Street took heart from the housing report. The falling dollar also helped the market. The Dow Jones industrial average gained more than 132 points, to close near 10451. The Nasdaq rose almost 30 points, to close at 2176.

Now Ray Suarez has more of our lead story coverage on the economy.

RAY SUAREZ: And, for that, we get two views, from Mark Zandi, chief economist at, and Joel Naroff, founder and president of the consulting firm Naroff Economic Advisors.

Mark, when you look at the mixed bag of economic numbers that are coming in day by day, the ones that Jim just cited for us, which do you see, more pointing positive or to a negative result?

MARK ZANDI, chief economist, MoodysEconomy.Com: A positive. The recession, the great recession is over. GDP, the value of all the things that we produce, is now expanding. And, so, we are growing again. So, this is all very good news.

But, of course, we’re still losing jobs. And unemployment is still rising, so this recovery that we’re in is still a very fragile recovery, and no guarantee that it evolves into a nice, sustaining economic expansion. So, the coast isn’t quite clear yet.

RAY SUAREZ: Joel Naroff, are you looking at a mostly positive or a mostly negative picture?

JOEL NAROFF, founder and president, Naroff Economic Advisors: Well, I think, right now, we are seeing some decent growth. But what worries me is what Mark just commented about. It’s not that we may have a couple of good quarters of growth, but the rest of 2010 and 2011 look like they’re shaping up to be really, really soft.

And this recovery could give us a whole period of substantial — substandard growth and a lack of jobs, and a big problem as far as the economy goes.

So, I’m looking at it in a situation where this is a head-fake and we have got some concerns going forward.

RAY SUAREZ: A head-fake. What are the key indicators? What are you looking at now that’s giving you this mixed look at the early part of next year?

JOEL NAROFF: Well, I think the key factor is the finance sector.

While, yes, it’s stabilized, it’s not in good shape at all. It’s out of the intensive care unit, but into the long-term care unit. And we’re not going to see the provision of credit in any manner that we used to see it when the economy began to pick up.

And businesses have a lot of capacity as far as labor is concerned, as far as capital is concerned. They don’t have to hire a lot of people. They don’t have to do a lot of investment. We’re not going to have the bubbles that we had in the last two decades. And we’re not going to have the bubbles that we had in the last two decades. We’re not going to have the tech bubbles, we’re not going to have the housing bubble that really drove us and gave us that extra strong growth.

So, that’s the constraints that are out there.

RAY SUAREZ: A bubble-less recovery, Mark Zandi?

MARK ZANDI: Yes, I think so, because I think we have learned a lesson from the tech bubble, the housing bubble. I think it’s much less likely that those animal spirits that one needs to create that kind of a bubble are going to come back, at least any time soon.

RAY SUAREZ: Well, what are the key numbers that you’re watching and you suggest people at home watch to get a picture of early 2010?

MARK ZANDI: Jobs, jobs. That’s key.

One good statistic is the number of people who are filing for unemployment insurance every week. That’s a very good real-time barometer of what’s going on in the job market. It’s come down. If you go back, say, back early this year, it was running around 600,000 per week. That meant, every week, 600,000 people were filing for unemployment insurance. We’re now down to 500,000 per week.

That’s great, headed in the right direction. But we need to be south of 350,000 per week to get the unemployment rate to start coming down.

State of the economy

Mark Zandi
Chief Economist, MoodysEconomy.Com
The recession, the great recession is over. GDP, the value of all the things that we produce, is now expanding. And, so, we are growing again. So, this is all very good news.

RAY SUAREZ: Joel Naroff, it's been widely reported that the first-time homebuyer's tax credit buoyed the housing market in the last couple of months.

Is that bringing new buyers into the marketplace, or simply shifting plans, people who would have bought next month, next year, somewhere down the road just changing their plans to get the tax credit?

JOEL NAROFF: I think it's done a little bit of both.

I think a lot of what we saw, especially the huge surge in October, was the fear on the part of people who are either about to buy or going to buy in maybe the next six months that if they didn't take advantage of this credit, they would never get it. They didn't know at the time that it would be extended. And it -- of course, it has been extended.

But I think there were also some other people who, if you think about it, when you have first-time buyers, they're buying relatively lower-priced houses. They have trouble getting together the money for a down payment or to pay for the closing costs. The extra $8,000 went a long way. So, I think it brought some people into the market that clearly would not have been. So it worked.

RAY SUAREZ: So, does that slow the housing market next year, because we got an unusual boost this time around?

MARK ZANDI: No, because Congress just extended and even expanded the tax credit now to more than first-time homebuyers. And that goes into next year.

And I think that will keep the housing market at least stable. But, more broadly, I think it's very important to recognize that this recovery is the result of the policy response, the very aggressive response by the Federal Reserve and by fiscal policy-makers, including stimulus. And the first-time homebuyer tax credit was a part of that stimulus.

Role of government stimulus

Joel Naroff
Naroff Economic Advisors:
It has worked to a fairly large extent...And I think the idea that the stimulus is going to continue through 2010 is critical.

RAY SUAREZ: Well, let's talk a little bit more about government policy, because, in the last several days, there have been many assessments or attempts to assess the effect of the Obama administration stimulus package on the wider economy.

Where do you come down on that question?

MARK ZANDI: I think it's worked. I mean, I don't think it's no accident that this recession ended just when the stimulus was providing its maximum economic benefit. So, it did its job. It ended the recession.

Now, having said that, this recovery is still very fragile. Businesses lack the confidence and the credit necessary to go out and hire. So, I think the economy still needs support. And, so, I would argue that policy-makers should continue to provide that support.

RAY SUAREZ: Joel Naroff, on the stimulus, where do you come down?

JOEL NAROFF: Well, I think it has worked to a fairly large extent. And this is where I think Mark and I agree.

And I think the idea that the stimulus is going to continue through 2010 is critical. If you go back to the Depression, you have to remember that the Depression wasn't one long recession. There was a failed recovery in the middle of that. And we can't afford a failed recovery at this particular point.

We would be shooting off all the bullets, and they wouldn't be there anymore. So, I think the fact that we can talk about an expansion, we can worry whether it's going to be strong or not, tells us that the stimulus response on the part of, as Mark said, both the government and the Fed, has worked.

And we still need some to make sure we get through 2010.

RAY SUAREZ: But, Joel, this morning's "New York Times" had a daunting, eye-opening set of numbers about the consequent government obligations now that all this stimulus has rolled out. A lot of money has to be paid back, and some of it quite soon, no?

JOEL NAROFF: Well, that's exactly right. And that's the rock and the hard place both the administration and the Fed were in between at this point.

If they didn't do anything, the economy would have fallen off the cliff. We probably would have had a worldwide deep recession. And we would be talking about 12, 14, 15 percent unemployment rates at this particular point.

But once we get through this -- and I think we start thinking about this as we go through the first half of 2010 -- we have got to cut that back. There's no options on that. These deficits are unsustainable. And they are the 800-pound gorilla that could really crush the economy, unless we start doing something soon.

RAY SUAREZ: We have got about a half-a-minute for you to respond.


Well, I think cutting back the deficit in 2010 would be a mistake, because that means tax increases and spending cuts, when the economy is still very fragile. So, in fact, working on the deficit in the coming year would be an error.

But, having said that, we need to focus on long-term deficit reduction. So, the president has to come out now and give us a very clear path as to how he's going to reduce those long-term deficits, because, if he does, it will give him more latitude to address the current problems.

RAY SUAREZ: Mark Zandi, Joel Naroff, gentlemen, thank you both.

MARK ZANDI: Thank you.

JOEL NAROFF: Thank you.