Most large companies have released their first quarter earnings and the critical economic figures for March and April are out. A growing number of economists say that the consumer will begin to conquer his panic by year's end and GDP will revive as if nothing had happened. The most recent poll from the Blue Chip Economic Indicators newsletter shows that many analysts expect GDP to recover as early as the third quarter but since that the measure was down 6% the last two quarters, such a swift recovery would be like building the Great Pyramid by hand in six months during a raging sand storm.
The economy has moved to the waiting room. There are unlikely to be many very important indicators until July. The rate at which unemployment is rising is supposed to slow. If so, May should be the last month that the figure can rise by more than 500,000. If June is much worse, then the recovery is hardly taking hold. Second quarter earnings for banks will have to be relatively strong or the hope of a rebound in the sector, which the "stress tests" indicated is possible, will dwindle. Investors may begin to think that the test criteria were too liberal. If that happens, the public's faith in the capacity of the federal government's ability to find systemic problems in the financial sector and solve them will diminish quickly. Nothing could be worse than the perception that both the regulated and the regulators have lost their ways. (See pictures of the global financial crisis.)
By mid-summer, the Administration's plan to help worthy mortgage holders reduce their monthly payments should show early signs of slowing the year-long acceleration of foreclosure rates. If unemployment and desperation among people with homes worth less than their mortgages leads a greater and greater number of mortgage holders to send their keys back to their lenders, the first, and most important step the government has taken to reverse the collapse of housing will become a disheartening symbol that the Administration and Congress have not solved a big part of the cause of the recession.
The economic stimulus package should be in full force by the summer. Companies that build roads, public structures like schools, and infrastructure projects are supposed be getting contracts for tens of billions of dollars in new projects. Out-of-work construction crews will be called back to work. The building sector will be on its way out of its depression. (See pictures of the Top 10 scared traders.)
It is very clear what will happen if all or most of these things go well. What is not clear is what will happen if things go poorly. The reason for the hundreds of billions of dollars being added to the federal deficit is the belief that the government can buy its way out of the recession. If that does not happen, the average citizen will lose what has been his last, best hope for having a reasonable economic life instead of living through a multi-year period of national financial stagnation and intransigent, high unemployment. It will be a world in which almost no one believes that his life will ever improve.
Americans are not used to having the rug of the hopes in their accomplishments pulled out from under them. The national character is built, to a large extent, on the notion that swift and forceful action can solve nearly any problem or reverse the course of any crisis.
Not, long from now, in June or July, Americans will get to take stock of a year's worth of economic carnage and a half-a-year of government effort to revive a moribund credit and financial system. If there are no signs of a recovery, tens of millions of people will experience a bewilderment which is entirely new to them.
Douglas A. McIntyre
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