US Recovery…Is it real?

Over the last three months we have seen the price of oil double and the international stock markets have seen significant upward movement in their indicies. There is a spirit of optimism growing that the USA is well on the way to recovery and that things will soon be back to normal. But is this optimism justified, is America about to return to the good old days?

We need to look at the facts behind the optimism to see if all is well. The first fact is that oil is now above $70. At this price that will significantly restrict the amount that the economies of the world can grow. If we are going to have sustainable growth we need oil prices to remain low for the short term (1 – 2 years).

Although the rate of job losses in the USA has slowed the unemployment rate is the highest it has been in over 50 years and is expected to go higher over the next 6 months. This of course means that the number of persons who can afford to buy consumer items is also at its lowest level in years.
The level of consumer confidence in the USA has risen with people being more hopeful. However, when one examines the retail numbers it is discovered that people are still buying only what they consider to be the critical items.

Even if the economy of the USA starts to recover early next year it would be unrealistic to expect the economy to return to what it was 3-5 years ago. The main reason for this is that much of that consumer spending was based upon investment gains that were not real thus leading to the collapse of the financial sector.

So what is really happening? Once again the speculators are out, talking up the market and trying to manufacture profits that are not achievable. It seems that we never learn our lessons when it comes to money and I wonder if it is going to take another collapse to get the message home.

Feedback Question: Is the Obama administration doing a good job of handling the American economy.