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Five reasons the economy is not as bad as it looks

There's no shortage of grim economic news: Unemployment is widely expected to inch up this fall, housing sales are dropping again and many are bracing for a September swoon in the stock market. Polling firm StrategyOne in a survey this week found two-thirds of Americans expect another economic slump ahead, and 44 percent of those worriers fear the next downturn will be worse than the first.

Yet, the level of gloom appears overstated from reality. Here are five signs the worst is over and we're more likely slogging through a gradual recovery than entering the Great Recession, Part II.

1. No double-dip recession is showing

At least not yet. The economy is still extremely weak, but it is growing. According to a recent Reuters poll of 70 economists, the country's economic output is expected to grow 1.8 percent in the third quarter and 2.1 percent in the fourth quarter. The group put the chances that the world's biggest economy would fall back into recession at 20 percent, down from 25 percent a month ago.

Wells Fargo senior economist Mark Vitner, who closely tracks Florida, said in a report last week that worries of a double dip "have subsided now that much of the July and August data show modest economic gains."

2. Mass layoffs are trending down

Coupled with news that the number of people signing up for unemployment benefits has fallen to the lowest level in two months, this indicates companies aren't aggressively shedding jobs again.

Florida had a temporary surge of layoffs in July, marked by major cutbacks on the Space Coast and in the Tampa Bay area, where Pricewaterhouse Coopers cut 500 IT jobs. The month, however, appears to have been an aberration. Overall, mass layoffs in Florida and nationwide have been trending down throughout the year. Florida employers filed mass layoff notices totaling 503 job cuts in August; that compares with layoff notices for 2,694 job cuts in August 2009.

Nearly two weeks into the month, Florida has received only one corporate layoff filing for September: Consolidated Container Co.'s plan to cut 14 jobs in Lakeland.

3. Productivity has been shrinking

Employers have enjoyed rising corporate profits after severe cutbacks in inventory and personnel. But they can't rely on that formula forever.

Productivity — a measure of employee output per hour — fell at a 1.8 percent annual rate in the second quarter, recent revisions show. The drop, the biggest decline in four years, was twice as much as initially thought.

Economists view it as a sign employers have wrung about as much productivity as possible out of a shrunken work force and may need to start hiring again to take advantage of business opportunities and maximize their potential profits.

4. Elections are coming soon

The buildup toward an election is often a battle of rhetorical extremes — the "summer of recovery" vs. economic Armageddon. The less sexy reality of slow, haphazard improvement can get lost in political sound bites.

For months, businesses have clamored that "uncertainty" over future tax and spending policies are inhibiting them from hiring or ramping up production. Whether that's a political smokescreen or real, uncertainty should die down once midterm elections are over.

Scott Brown, chief economist with Raymond James Financial in St. Petersburg, said companies may be appeased "especially if the Republicans take control of the House. The view would be you'd have some sort of stalemate and you'd be less likely to see further restrictions on businesses in the future."

5. The unemployment rate is rising

It seems counterintuitive that this is a good thing. But the country's unemployment rose a notch to 9.6 percent in August mainly because jobless who had given up were confident enough to hunt for work again. About 500,000 people re-entered the labor pool in August. Typically, the labor pool starts swelling with re-entrants after a recession is over and employers are hiring again.

Job openings rose in July after two months of declines, another indication companies could step up hiring in coming months. Job search site reported that all 12 major industries it tracks had more job postings in August than any other month this year. Leading the way was manufacturing, with postings up 67 percent year-over-year and up 20 percent over one month.

The next few months, and even weeks, should provide more clarity on whether a gradual recovery is still on track.

Retail sales for August will be available on Tuesday. The Consumer Price Index, the most widely cited gauge of inflation, comes out on Friday. Also on Friday, closer to home, Florida will release its unemployment statistics and details on jobs created and lost in August.

"I think the things to watch right now are essentially everything," said Brown of Raymond James.

Not that he's looking for a quick fix.

"One of the bigger factors in the recovery is simply time," he said. "There was a lot of financial sector damage done and it takes time for households to improve their balance sheets, for companies to improve their balance sheets. Consumers are paying down debt and saving. And we're not seeing job destruction. The real problem is job creation … and that's going to take a while."

Five reasons the economy is not as bad as it looks 09/10/10 [Last modified: Friday, September 10, 2010 8:43pm]
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