Has the U.S. Economy Turned the Corner?

economy-turnsBased on the evidence presented by the USA Today, the answer would be yes, the US economy has turned the corner. The paper has its own proprietary index that suggests 4Q in particular will serve up an upside GDP surprise (see page 4B). The front page of the USA today runs with Reports Show Economy Mending; the Fed’s Beige Book (see more below) was rife with talk of “stabilization” and the pace of decline “moderating”. But are there still lingering strains? Absolutely ‚Äî and for how stretched the marginal household is, have a look at Unpaid Property Taxes Hit Localities. Moreover, as Washington pumps the economy with fiscal steroids, the state governments are in amputation mode.

But there is no doubt that after the sharpest downturn in housing, production and employment since the 1930s, that the laws of gravity themselves prevent the economy from any further deterioration. Nothing is going to zero, and there is always the chance that housing sales edge back up towards their demographic levels, auto sales recover to their replacement demand levels (plus GM getting back into leasing), and inventories get rebuilt in line with spending levels. The government has its hands in 40% of the economy and when public sector officials can influence how banks can value their assets, how mortgage servicers should be doing their business, who shall fail in the financial industry and who shall not; and when we have a central bank that is not just the lender but the market of last resort, even for RVs, and a government willing to run up its deficit to levels that would have frightened FDR , then perhaps we can end up seeing a recovery occur sooner than we had thought.

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