Tuesday, February 24, 2009

Four Signs of Strength in the U.S. Economy

Looking at the U.S. economy, there are reasons for hope — indications that, although the economy might not be at the bottom yet, it is not sliding out of control either. These are a few of them:

  1. Lower volatility in securities markets. The lower volatility and low volume when the stock market hits a new low point is a sign that stockholders aren’t that interested in selling stocks at these low levels, even if not that many people want to buy. It’s a sign that stockholders have a basic level of confidence in the economy.
  2. Few runs on banks. People’s reduced confidence in the banking system hasn’t resulted in many runs on banks, even banks that have been widely reported to be near insolvency. People still trust the deposit insurance system and are willing to let it do its thing.
  3. Steady inventories. An economic crunch usually results in a sudden rise in inventories, as businesses unexpectedly find themselves holding large amounts of manufactured products they can’t sell. When that happens, it forces economic activity to fall further. Inventories have piled up in a few areas, but these are balanced out by other areas where businesses have succeeded in cutting inventory. The steady inventories mean that manufacturers will have to go back to work almost as soon as the economy levels off, taking away most of the risk of a depression.
  4. Can-do attitude. People facing unexpected challenges still expect to find a way to succeed. In the early 1980s, it was common to hear people say, “There just aren’t any jobs out there.” Today, I’m more likely to hear, “I’m going to find a job if it takes me all year.” People who expect to solve problems do so faster, and it’s that problem-solving process that moves the economy out of a recession.