Many economic analysts took comfort this week from the fact that initial jobless claims were down, but there was also a lot of evidence that we're still scraping along. Sure, it's good to know we actually have hit bottom - for a time in January the economy was in freefall -- but it's too soon to celebrate an economic turnaround. Even if this is a U-shaped recovery, as many economists predict, we're still in the bottom of the U.
The Labor Department reported that applications for unemployment benefits fell by 38,000 to 550,000 last week, the fifth straight week below 600,000. But you can't ignore the fact that the pace of mass layoffs hasn't slowed to the point that the jobless rate actually declines. Indeed, when that number is reported Friday, it is expected to go up to 9.6 percent, a rise of 0.1 percent from last month. Employers have cut 6.5 million jobs since the recession began, the largest number in any recession since the Great Depression.
If the economy was turning around, wouldn't we see that reflected in things like retail sales? In fact, July was a tepid month for retailers. For example, teen retailer Abercrombie & Fitch suffered a 28 percent decline in same-store sales compared with the same period last year.
Even low-cost retailers suffered from a lack of sales, with Target posting a 6.5 percent same-stores sales decline. "We believe the consumer is likely to bounce along the bottom for quite some time rather than return to their previous shopping habits," Amy Noblin, an analyst at Pali Research, said in a note to clients.
According to the Commerce Department, spending actually rose 0.4 percent in June, following a rise of 0.1 in May. But there were two problems with this optimistic number. Most of the extra spending was for higher-priced gasoline. And when the numbers are adjusted for inflation, spending actually fell 0.1 rather than rising. Consumer spending is crucial because it accounts for two-thirds of economic activity in the U.S. and the economy won't likely recover until consumers start opening their wallets again.
The tepid sales figures were reflected in a poor showing in the entire services sector. The Institute of Supply Management said its index of services registered 46.4 percent in July, down 0.6 percent from June, indicating "the economy is still contracting."
Another fact to consider: personal income declined 1.3 percent in June, as the impact of the government stimulus checks wore off. But the figure was actually up 1.3 percent in May, so this was an even bigger contraction than the June results showed. Hardly anything to get excited about.
About the only thing moving quickly were cars being sold under the cash-for-clunkers program. Under this deal, owners of gas-guzzling cars can trade in their vehicles for a fuel efficient model and get a $4500 rebate from Uncle Sam. By this week, there were 184,000 trade-ins. But here's the bad news: Only one American car, the Ford Focus, made the top five new car trade-ins. The others were the Toyota Corolla, Honda Civic, Toyota Prius and Toyota Camry. So who exactly benefits from this government hand-out?
Earlier this week, Nobel Prize winning economist Joseph Stiglitz told Bloomberg Television that it was not going to be a fast turnaround. "There are a lot of potholes in the road," he said. "It's going to be a slow, very slow recovery."
So perhaps we should stop cheering every time a new statistic is published indicating that Armageddon has been avoided. It's going to be a long haul back and we're still at or near the bottom.