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How Evident Are The “Green Shoots” of Economic Recovery?

25 may 2009 - News - Editor

Following a day of choppy trade on Wall Street, a late in the day sell off resulted in major indexes closing the day slightly lower. While there was no major economic news to account for the sell off, a general feeling of concern about the state of the U.S. government’s economic health persisted among stock market traders following a warning by Standard & Poor that Britain was in danger of losing its long-standing triple-A debt rating. Risk management company Moodys has however noted that the U.S. government’s triple-A rating is currently not at risk, which may go some way to restoring investor confidence.

In mid-March of this year, Chairman of the Federal Reserve Board Ben Bernanke, revealed in a 60 Minutes segment that he detected what he termed as the "green shoots" of economic recovery. Seen as a reference to a renewal of life following winter, or a devastating fire, the term "green shoots" is meant to be a reference to the first signs of recovery of a devastated economy. The phrase is now being used by everyone from analysts to journalists who have become anxious for any sign of hope to pass on to investors. Opinions vary as to what can be considered to be economic recovery, with some seeing a "less-worse" situation as favorable, others viewing a bottoming out of the market as encouraging, and yet others being of the opinion that one would need an extremely powerful magnifying glass to find those green shoots at all. While it may be easy to label the latter group as cynical, there is overwhelming support for being cautious.

For one thing, General Motors has until 1 June to either restructure its debt or file for bankruptcy. GM CEO Fritz Henderson has been reported as saying that bankruptcy is "probable". Having reached agreements with the United Auto Workers and the Canadian Autoworkers unions to allow the company to reduce some of its retiree healthcare and labor costs, GM needs to strike a deal with bondholders to avoid bankruptcy. If this doesn't happen, the once mighty automaker may very well file for bankruptcy in June, with inevitable job losses and other economic repercussions.

Another indicator that there is still a long road ahead to economic recovery can be seen in the thousands of shopping malls across the United States, many of which are becoming virtual “ghost towns” as shoppers redefine what constitutes a necessity and a luxury. Empty shops translate into job losses, which in turn result in less consumer spending, which results in shops closing doors, and so the cycle continues. With consumer spending being a determining factor in the health of the U.S. economy, continued job losses certainly aren’t doing the economy any good. Magnifying glass anyone?

 


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