Time could prove me wrong but I think we are embroiled in a false recession created more by a hysterical press than economic conditions.
External factors, internal factors or both can cause recessions. Our economy has been impacted in recent years by the Japanese financial debacle of the mid-1980s. More recently, the economic instability in Russia and other countries, which once formed the Soviet Union, has had a negative impact on the U.S. economy. These are external factors and generally have had minimal influence on us.
Recessions usually occur when our economy gets out of balance in one segment or the other. One of the characteristics of an unplanned, free market economy is the necessity to periodically expand and contract. Manufacturers make more products than consumers want at that particular time. The manufacturers then lay-off workers to slow production schedules and reduce inventories, unemployment goes up and consumption slows further as workers have less discretionary money available.
Inflation and the related increase in interest rates can also spiral the economy downward toward recession.
None of the traditional recessionary indicators are present in our economy. Unemployment continues to be very low and interest rates are low. Consumers have jobs and purchasing power but for some reason, they have stopped buying.
Have we talked ourselves into a slowdown? Some have said that the press overreacting to a normal cyclical dip in economic activity caused the current economic slowdown and it has fed on itself since the fall of 2000. In addition to the cyclical dip, the collapse of the dot.coms during 2000 has destroyed many paper fortunes and caused widespread layoffs in the high-tech industry. Some old gray-heads suspected that the technology bubble had to burst eventually and it did. Is that any reason to slow the entire economy?
A recent report by the Federal Reserve seems to agree with me that the slowdown was unfounded and we should begin digging out over the next few months. That report indicates that February consumer spending offers a ray of hope. Most of the Federal Reserve districts experienced sluggish to modest economic growth in February. How can we have sluggish to modest growth if we are descending into the bowels of a prolonged recession?
Let’s look at some of the areas of the economy to see if a pattern is developing. Manufacturing, which has been bearing the brunt of the economic slowdown, continued its decline in activity. Consumer spending, which accounts for two-thirds of the nation’s economic activity, rose slightly in most Federal Reserve districts. Sales of new and existing homes continue to be fairly brisk in many regions, bolstered by cheaper mortgage rates.
How do we get out of this mess? The patriotic thing to do would be to go buy something. Actually, several somethings would be better. Those of us with discretionary income could turn this thing around if we simply loosened up on the purse strings. If an increase in consumer spending, particularly for durable goods, were to happen, manufacturing lay-offs would stop and workers would go back to work and spending would increase even more.
If I’m right and this really is a false recession, increasing consumer confidence and spending is all that is required.
Thought for the Moment – I can honestly say that I was never affected by the question of the success of an undertaking. If I felt it was the right thing to do, I was for it regardless of the possible outcome.
— Golda Meir (1898-1978),
former Prime Minister of Israel
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at email@example.com.