How Will We Know the Economy Is Better?
Economic indicators range from consumer confidence to the stock market, from unemployment figures to inflation, from the housing market to oil prices, from the price of gold to the exchange rates on various foreign currencies. Given the complexity of this range of indicators and the fact that they appear to go up and down almost at random, how will we know that the economy is improving?
Some factors change very quickly in response to news, such as the stock market. Pundits will suggest that the market “liked” one thing or “disliked” some news and rose or fell accordingly. The micro-movements of the stock market are not likely to tell us a lot, given its volatility. The general movement, however, is helpful. The Dow Jones Industrial had topped 14,000 and now it is significantly lower but slowly rising. That is a good sign.
Other factors change slowly. For example, those companies that have eliminated workers are not likely to bring those workers back until they are pretty sure they will not have another layoff real soon. The unemployment rate is likely to lag behind other economic indicators because hiring an employee requires a significant financial commitment to the future.
Consumer indicators are likely to be a relatively early sign of improvement. We can expect to see increases in sales of small consumer goods as the economy begins to improve. This will be followed by increases in somewhat larger goods, eventually reaching the housing market. When people start to feel confident about the economy, they are likely to “test the waters” with smaller luxury items. As their confidence increases, they are likely to make larger financial commitments such as buying an automobile or a house.
It took some time for the economy to fall apart and it will take somewhat longer for it to return to full strength. While some consumer indicators can rise in a matter of months, it will take quite awhile for employment to return to the old high levels. There may not be a particular point at which we can say, “this economic downturn is over,” but we will notice that the light at the end of the tunnel is brighter and bigger and that we feel more relaxed about our personal finances. Let us hope that we can retain some of the positive lessons we learned during this financial downturn; learning to be more financially responsible and reaping the benefits of that could make this economic struggle a strengthening factor in our lives and our nation.
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