Joe Willie On The Shrimpbox: The Economy

The Economy:

The stimulus package is now law, so now all we have to do is sit back and watch the economy grow like a beanstalk, right?
Nope. Obama has promised that 2009 will be a difficult year and that only next year will we start to see improvements. Most economists agree that it will take that long, at least, before the biggest problems --mounting layoffs, the housing bust, the banking crisis, and plunging confidence-- start to turn around. How will we know if and when the stimulus package is working? Here are four things to watch:

1) An improvement in the unemployment rate. Of all the economic indicators, this is probably the single most important. But you better hold your breath: It's almost certain that through this summer and into the fall, there will be a net job loss, not a gain. Most economists expect the unemployment rate, now 7.6 percent, to hit at least 9 percent by the end of this year. The first sign of an improvement will be corporate silence, as in no more draconian job-cut announcements. Once that happens, the unemployment rate will plateau. Then, companies might start hiring again, and a couple of months after that, the unemployment rate will start to fall. Probably won't happen until mid-2010. (Maiman)

2) More stable home prices. The real estate boom and bust is what torpedoed the economy in the first place, and the economy won't start to recover until the housing bubble fully deflates. Moody's Economy.com predicts that housing prices should stop falling nationwide by the second half of this year. Once prices stabilize, buyers will stop worrying about buying a costly asset that's falling in value. As they buy, other kinds of consumer activity will follow: Furniture, remodeling upgrades, etc. (Maiman)

3) A consumer confidence rebound. Consumer confidence closely tracks the job market. Feel better about your job? You feel better about spending money on cars, appliances and other goods. Employment isn't expected to rebound until next year, so think 2010. (Maiman)

4) A less volatile stock market. This is toughest to predict since it's deeply dependent on psychology and other intangibles. Every investor hopes that battered stocks will come roaring back in 2009 but a better indicator of economic health would be a steady recovery, without the manic swings that seem to come from every hint of undisclosed trouble at some big bank or rumor of new government intervention. One hopeful sign would be less market sensitivity to events in Washington and more reaction to free market activity like earnings reports, IPO announcements, and mergers and acquisitions. Since the government seems to be the only institution spending money so far in 2009, it could be awhile before Wall Street returns to form.