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It's Always Darkest Before the Dawn

The opinions expressed by columnists are their own and do not necessarily represent the views of

WASHINGTON -- Is the U.S. economy coming to the end of its slump? There are a number of signals that suggest it is, and some economists are saying we may already be in a recovery.


If so, that would be welcome news to beleaguered Americans who have been hit hard by layoffs, rising food and gas prices, mortgage foreclosures, and a bearish stock market that has been crushing 401(k) balance sheets and other worker-retirement accounts.

But last week's economic developments suggest that we may be hitting bottom and are slowly, but surely -- no doubt with some zigs and zags along the way -- beginning to turn upward.

There was, to begin with, the sharp slide in oil prices throughout midweek when a barrel of light, sweet crude fell to $124 on the New York Mercantile Exchange -- down from a record $147 a few weeks ago.

Several factors led to the price decline on the futures market, but chief among them was the Energy Department's report that domestic inventories have risen as energy demands have fallen. People changed their driving habits or have been taking mass transit more. That has led to increased oil and gas supplies and thus lower prices. The average price of gas fell a bit, too, and will likely fall more if oil goes lower.

President Bush's executive order repealing the ban on offshore oil drilling signaled that increased production may be in our future if we can overcome Democratic opposition in Congress. Whatever the reason, the decline in oil prices is the equivalent of a huge tax cut and, if sustained, would be good for the overall economy.


The decline led to a mini-rally of short duration on Wall Street that pushed up stocks and improved mutual-fund positions for the month. Bond prices fell as investors moved into stocks to catch the rise in equities, moving the interest yield on the U.S. Treasury 10-year note to more than 4 percent. The dollar has been strengthening, too, relative to overseas currencies.

Also improving the long-term outlook on Wall Street are better second-quarter corporate earnings reports that showed many companies were doing better than expected. McDonald's, AT&T and Pfizer reported upbeat earnings that signaled there's still a lot of resilience in the U.S. economy.

Even the financials were showing some life at midweek, despite the credit and mortgage debacle. Wells Fargo and troubled Wachovia, the nation's fourth-largest bank, saw its stocks jump significantly. Even so, that sector still has a long way to go before it's out of the woods.

The brightest spot in the U.S. economy was exports. The Commerce Department reported last week that American companies sold a record $1.6 trillion in goods and services overseas, and manufacturing accounted for 62 percent of those sales.

Indeed, the United States was "running a trade surplus in manufactured exports with our 14 free-trade-agreement partners," the department said.


The doom-and-gloomers are still with us, of course, and they will go to their graves forecasting that life as we know it is coming to an end and that we are in store for years of economic depression and recession.

Last week, The New York Times ran a front-page story maintaining that Americans were saving less than ever, and that their debt burden had risen by an average of $117,951 per household. And the London Telegraph says there are even harder times ahead of us, comparing today's economy to the Great Depression of the 1930s.

Wall Street economist David Malpass thinks that kind of fear-mongering is filled with manipulated statistics that ignore long-term wealth creation in our country, as well as globally. Increasingly, people are investing "for the long run -- for capital gains (not counted in savings) rather than current income -- in preparation for retirement," he told his clients last week.

Instead of a coming recession, "we think the U.S. is in gradual recovery after a sharp two-quarter slowdown, with consumer resilience more likely than the decades-old expectation of a consumer slump," Malpass said.

"Fed data shows clearly that household savings of all types -- liquid, financial and tangible -- are still close to the record levels set in September. IMF data shows U.S. households holding more net financial savings than the rest of the world combined. Consumption has repeatedly outperformed expectations in recent quarters and year," he said.


The American economy has been pounded by a lot of factors, including the housing collapse (a needed correction to bring home prices down to earth), the mortgage scandal and the meteoric rise in oil and gas prices.

But this $14 trillion economy, though slowing down, continues to grow by about 1 percent on an annualized basis, confounding the pessimists who said we were plunging into a recession defined by negative growth over two quarters. That has not happened -- yet.

Call me a cockeyed optimist, but I do not think we are heading into a recession. On the contrary, I'm more bullish than ever on our economy's long-term prospects.

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