OK, everyone, take a gander at what an economic soft landing looks like. This was the hot topic on Wall Street maybe last year.
The desire was to escape recession and merely have the economy backpedal just a tad; enough to cause some economic pain but not so much as to affect us personally.
I’ll get to all this in a moment after we cover Wall Street last week. Since the basic expectation was for a soft landing for business, the fear now is that an actual recession is slightly more thinkable. It gave the bulls some headaches last week, only days after the Dow was a quarter point away from 3,000.
After a 106-point opening plunge on Monday morning, things cooled off and the Dow lost but 62 points for the week to close at 2,898.51.
The utility average did surprisingly well, however, gaining 1.20 to 203.35. Best guess here is that this is a proxy for slightly lower interest rates over the near term as the Fed eases money and credit to hype the economy.
Now, back to that soft landing.
If the Fed left the economy alone, which many think more desirable than what we now have, it would likely boom and bust in violent fashion. That’s the bad news.
The good news is that people would be a lot more respectful of money and credit and the labor required to earn them. It would be a fact of life, however painful.
Such is not the desirable path in the latter part of the 20th century. If only the Fed could smooth out those ups and downs of business, we could have a kinder and gentler economic cycle in which few would suffer.
The idea is, if you fiddle with money and credit as well as government demand for products, you can help keep business from sliding into a recessison; not by much but by just enough.
Now a definition. A recession is two, three-month quarters in which total gross national product goes backward. Nobody likes to go backward.
We all know what growth is. That’s what we’ve had for most of the past eight years.
A growth recession is where GNP reverses just enough to stay in the positive category without going into recession.
In theory, it’s supposed to work, but in practice it is highly evasive.
In any event, you are now looking at a bona fide growth recession for this country.
Last week, for instance, after-inflation GNP in the April-May-June quarter came in at 1.2 percent. It’s less than the 1.7 percent rate of the prior quarter but is still growth.
This is exactly what all the bulls wanted last year and is probably why the Dow has held up as well as it has since then.
We do seem to have the best of all worlds. Business is soft but not too soft and the pain hurts some but not too many.
Now for the unfortunate part, which everyone already knows. I don’t recall an instance when the Fed successfully engineered a soft landing that worked for very long. Something unexpected always went wrong.
Well, there you have it, the soft landing everyone wanted. Just don’t you move an inch.
Correct as that was, the fear of tomorrow is that present slowness will evolve into a recession anyway. Growth has been slower than first thought and this real estate-bank thing is not getting any better.
My feeling is that the economy is about to revive again in a surprise consumer resurgence. I think it’s the result of steady employment numbers coupled with rising wages and a retrenching consumer. They feel relatively flush because of savings and the fact they still have a job.
Barring an economic surprise like an oil embargo, it would seem unlikely to expect a broad recession until this cash reserve is spent.
Paul Jarvis is a stockbroker in Bangor with A.G. Edwards
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