One of the new terms to come out of the recession is “green shoots.” I couldn’t help but think about that yesterday as the Fed released its latest statementabout the economy and said it would leave interest rates unchanged. (Fed Keeps Rates On Hold, Citing Weak Economy)
Fed Chairman Ben Bernanke used that term not long after the March 9 stock market low to describe what he believed were early signs of recovery in a shrinking economy. As the market rallied sharply off its recent bottom, “green shoots” became an increasingly popular catch phrase, especially among those who wanted to believe better economic times were just around the corner.
From my vantage point, I have trouble buying into the whole idea of green shoots. I know the market itself has bounced, but people I talk with everywhere I go are still feeling squeezed financially.
It’s hard to believe we are in for a dramatic change to the economic landscape anytime soon.
Even in its statement yesterday, the Fed said the “pace of economic contraction is slowing.” That’s certainly better than the alternative, but it’s a far cry from growth.
The massive stimulus efforts from the governmentmay well pay off down the road, but it is unrealistic to expect any real effect for quite some time. Consumer spending drives the economy, but Americans are embracing a back-to-basics mentality and holding on to more of their money. According to the most recent statistics, stimulus efforts added $44 billion to Americans’ after-tax income in April while household savings increased three times that much ($131.5 billion) – so it appears people are saving that stimulus money.
We seem to be past the point where the economy is in danger of falling off a cliff, but we are still very much in a slowdown. How to invest successfully in this challenging environment will remain a key question for the foreseeable future, and one that we will continue to explore.
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