Cautious optimism on the economy

What happened

President Obama and his economic team are now indicating that the deep recession may have reached its bottom, saying that the economy is beginning to show “glimmers of hope.” In speeches this week and last, both the president and Fed Chairman Ben Bernanke expressed cautious optimism, saying that the government’s efforts to lower interest rates had touched off a wave of mortgage refinancings, and that stimulus money funneled to the states had revived construction hiring and spending. In addition, new-home sales rose a surprising 4.7 percent in February, and the high-tech and banking sectors furnished other hopeful signs. Chip-maker Intel, a high-tech bellwether, said that the computer industry had “bottomed out,” and banking giant Wells Fargo announced an unexpectedly healthy $3 billion first-quarter profit.

Other reports, however, darkened the economic outlook. Retail sales dipped 2.1 percent in March, following two consecutive months of modest increases, and the producer price index, a measure of economic strength at the wholesale level, fell 1.2 percent. The unusually steep decline suggested that business spending remains sluggish. And most forecasters expect unemployment to continue to increase for at least the next several months. In the face of the continuing uncertainty, the stock market had a brief sell-off early this week, after five consecutive weeks of steady gains.

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What the editorials said

Fed Chairman Bernanke deserves much of the credit for stabilizing financial markets, said The Washington Post. His aggressive moves to pump more than $1 trillion of credit directly into troubled banks has created more liquidity, loan activity, and confidence, and “may well turn out to be the winch that pulls the economy out” of the ditch. But once the recovery begins, Bernanke must move quickly to mop up the financial system’s excess cash. No one wants to go from 1930s-style depression to 1970s-style inflation.

Whenever the economy does climb out of this hole, said National Review Online, Obama will take credit that he doesn’t deserve. Averse to the political risks of either nationalizing the banks or letting the free market determine which ones survive, he has failed “to provide a framework for resolving troubled financial institutions that cannot save themselves,” leaving taxpayers on the hook if big “zombie” banks fail. As for his $787 billion stimulus package, it’s mostly a waste of taxpayer money. But you can be sure Obama will claim it saved the country from a depression.

What the columnists said

Up, down, sideways—that is what recoveries look like, said Paul LaMonica in CNNmoney.com. This week’s stock-market downturn suggests that “the economy may not be as close to recovery as traders thought it was, but that doesn’t mean we’re back on the road to ruin.” Chances are, we’ll see more economic reports that “vacillate between good and bad.” Buckle up for a bumpy ride.

It will take us years to heal “the scars from this recession,” said David Shribman in the Pittsburgh Post-Gazette. Young people especially will remain “leery of the stock market, careful about buying a house, afraid to spend.” But there’s no denying that the worst may be over. Recent polls show “a dramatic increase in the rate of Americans who say that things are going in the right direction.” And confidence is the “oxygen” that fuels recoveries.

Exactly so, said Eamon Javers in Politico.com, which is why Obama has chosen to sound a more optimistic tone. He’s coming up on his 100th day in office, and for that symbolic milestone he would like to point to some progress on the economy. But the Obama administration is heavily qualifying its rollout of positive messages, knowing that the last thing the new president needs is “a premature ‘Mission Accomplished’ banner on the economy.”

What next?

The administration will soon release results of the “stress tests” administered to the nation’s banks, which are designed to reveal which of these institutions are reasonably healthy and which are still paralyzed by toxic debt. Administration officials are now debating how much information to release, said Deborah Solomon and Michael Crittenden in The Wall Street Journal. Too much detail about bad debt might scare stockholders and depositors, but there must be enough information to convince the public that the tests were rigorous and that the banking system is essentially sound.