TW: Larry Kudlow's inane "mustard seeds" have given away to another tiring meme, "green shoots", which have attained a tedious level of ubiquity. Jim Kwak comes through with his usual insight on the topic. Things are going down less fast, perhaps they will flatten, but then what? An export driven recovery amidst a worldwide slowdown? A housing binge?
From Jim Kwak at Baseline Scenario:
"...There has been a lot of discussion of “green shoots” scattered around the Internet recently. Most of it, I think is premature. A lot of economic indicators seem to show that things are getting worse at a slower rate than before. One major source of optimism was last week’s jobs report, which showed a net loss of “only” 539,000 jobs.
...“The most intense spate of weakness is probably behind us,” said Michael T. Darda, chief economist at the research and trading firm MKM Partners. “Less bad is always a prelude to good. It’s going to take some time for this economy to get back on its feet, but we might be closer to the recession ending.”
...As I’m sure other people have noted, these are second derivatives that are improving: the direction of change is still negative, but the change in the rate of change is positive. This is not too surprising, because some levels of economic simply cannot fall beyond a certain point in the short term.
...The four-week average of new unemployment claims is another indicator that the end of the recession (meaning the end of economic contraction) might not be too far off;
...What happens next, however, is another question. Will the economy return to long-term trend growth of about 2.5-3.0% per year? Or will we muddle along with a “jobless recovery” where economic growth is barely sufficient to keep pace with population growth? The important thing to remember is that trend growth is just a long-term statistical average; there’s no magical mechanism that generates growth all by itself. I’ve said before that a lot of 2010 forecasts look like reversion to the mean, which is a valid way of forecasting, say, the expected height of the offspring of two tall people, but not necessarily economic growth.
For one thing, there’s no going back to the economy of 2002-07: a disproportionate share of economic growth then came from finance and real estate, and that isn’t happening again for a while. More fundamentally...we have reason to believe that the usual engines of recovery – personal consumption and residential real estate – are likely to be missing in action, in part because the crisis is likely to have caused a long-term increase in household savings.
So what’s with all the optimism? To some extent, it reflects people’s personal predilections: optimists see a recovery in the same data where pessimists see a long, flat line. In addition, though, I suspect there’s at least a little marketing at work here...The economic stimulus package and, more likely, the monetary stimulus provided by the Fed will also have an effect. But they are fighting against millions of foreclosures to work through and a newfound desire to save on the part of the American consumer, and it will be a long battle."
http://baselinescenario.com/2009/05/15/the-green-shoots-debate/
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