McQuiston: Confusing economic indicators

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(HOST) Commentator Tim McQuiston has been watching economic indicators closely this summer – but he still doesn’t know what to make of them.

(MCQUISTON) What on earth are we to make of recent economic news? In the middle of July, economists could hardly have given us a more depressing report. The following week we heard that the unemployment rate in Vermont actually went down three-tenths of a point and that state revenues for FY2009 were $14.5 million more than anticipated. The good news is that about half of that can be rolled into the new fiscal year. Unemployment claims are on a positive trend.

But barely a month into the new fiscal year, FY2010, Vermont’s revenue projections already put us $28 million more in the hole. And that might not even be the bad news. While the current 2010 revenue projections are down, next year’s budget may have to be slashed $100 million because of revenue shortfalls. But even that’s not the worst news. The worst news is that economic projections suggest that the economy could be facing a double-dip recession.

Already, the United States is in its worst recession since the Great Depression. We’ve been in recession for 19 months. The next worst recession, dating all the way back to the 1930s, lasted only 16 months.

The economic numbers have been as difficult for the economists to read as they’ve been for the rest of us to understand. Back in April, it looked as if we had neared the bottom. But then the economy faltered again. By the end of May, unemployment rose and consumer confidence slumped again.

Home building is at a historic low at a time in Vermont when home prices are still stuck at fairly high prices. "For Sale" signs are up across the state, but prices have barely dropped. Affordability is suffering. Usually the laws of supply and demand are about as reliable as the laws of nature. So it appears that something unnatural is happening.

But wait, there’s a contradiction here as well. Home sales both in Vermont and in the U.S. have clearly increased the last three months. Now some of this is because of the $8,000 federal tax credit for first-time homebuyers, but favorable interest rates and consumer demand are also improving the situation.

Even Gross Domestic Product, while still down a little, has shown substantial progress. The stock market has shown sudden strength.

In the short term, the negative trend lines seem to have once again flattened out. The report from the economists last month that sent a chill through Montpelier even now looks less ominous. The message was something like, don’t get complacent; it’s more likely things are going to get worse by the end of the year than better. But then again, economics is more the art of explaining what has already happened, than it is the science of fortune telling.

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