Reports of Economic Recovery – Premature?

Recent reports signaling an Economic Recovery may be a bit premature according to Dr. Mark Dotzour, chief economist at the Real Estate Center at Texas A&M.  Three (3) issues need to be addressed before we are in recovery according to Dr. Dotzour.  The number one item is political – health care and the cap-and-trade issues need to be resolved.

No one seems sure when health care legislation will be resolved (end of 2009 or early 2010 is best guess).  The current cap-and-trade legislation being considered by Congress is explained in this recent New York Times article.

The White House meeting took place as the Senate Environment and Public Works Committee began its second hearing on cap-and-trade legislation sponsored by Sen. John Kerry (D-Mass.) and panel Chairwoman Barbara Boxer (D-Calif.). The Kerry-Boxer bill (S. 1733 (pdf)) would cap U.S. emissions of carbon dioxide and other heat-trapping gases at 20 percent below 2005 levels by 2020 and 83 percent by 2050.   New York Times, 10/28/09

The other two (2) items are economic indicators that need to improve says Dotzour.  One is the personal savings rate and the other is increased corporate profits.  As seen in the following graph, the personal savings rate is trending upward but it

“needs to level out so that consumer spending will start to increase again.”

An increase in corporate profits shows some indication that a turnaround has already begun.  An upward trend in corporate profits lessen the likelihood of companies laying off employees.

The most recent corporate profits reports are showing improvement, but the good news needs to be sustained in order to signal recovery.  Research Economist Dr. Jim Gaines notes that the upward tick in corporate profits has come from reduced costs, which is not the sort of capital that fuels expansion.

“Keep your eye on these three issues,” Dotzour said.  “When they are resolved, the economy will begin to turn the corner.”

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