Finance Column » Your Money This Week » A holly jolly economy?

A holly jolly economy?

By Gregg Fields ·
Monday, December 20, 2010
Posted 11 am ET

It's hard not to notice that feeling in the air, a sense of goodwill, the certainty that a glorious time has finally arrived.

Yes, if the experts are to be believed, the recovery is about to begin in earnest. None of that wimpy "The recession officially ended in March 2009'' sentiment, either. Last week, the wizards of Wall Street were overcome by the kind of feel-good sentiment not seen since "It's a Wonderful Life" premiered.

''I'm feeling more optimistic that the economic recovery will evolve into a self-sustaining expansion in 2011,'' Mark Zandi, the well-known economist for Moody's, told the Associated Press.

Someone cue John Boehner: Forecasts like that merit tears of joy.

Yet, behind the scenes, the causes for good tidings seemed curiously counterintuitive.

For instance, last Thursday, the Labor Department said first-time unemployment applications were down 3,000 on the week, to 420,000. If you're one of the 420,000, you may feel like finding a red kettle and a bell while the opportunity lasts.

But analysts saw the elfin decline of 0.7 percent as evidence America is on the march.

Christmas sales are ringing. The indexes are glistening like tinsel. And for Wall Street, it's the most wonderful time of the year: The surviving titans of finance, many of whom helped steer us into the Great Recession, are now, incredulously, set to receive near-record year-end payouts. As they say on Wall Street, every time a bell rings a financier gets a bonus.

"There is a sense that we turned a corner -- that the economy may be out of the woods," says Mark Vitner, an economist at Wells Fargo.

One wonders, however, if economists perhaps can't see the forest for the Christmas trees. Perhaps it's the season, but nothing last week, it seemed, was viewed negatively. Examples: The trade deficit is growing. (Consumers are buying!) Interest rates are rising. (No deflation!) Ireland got downgraded. (We're not Ireland!)

Some even took solace in the fact that housing starts were up in November. They're now a whopping 16 percent above where they bottomed out early last year.

It's a little like marveling at how high King Kong bounced.

On Friday, the no-news-is-bad news parade continued when the Conference Board announced that leading indicators rose in November.

While that's laudable, it's fair to ask what the punditry's eggnog was spiked with. The truth is, the indicator most families care most about is unemployment. And it's rising along with the financial community's optimism. Furthermore, joblessness will surely get worse during a recovery, as discouraged workers -- see bells and red kettles above -- return to the job hunt and deepen the labor pool.

The standard wisdom has always been that America will create jobs thanks to new technology. But it's doubtful that the 650 Yahoo workers who got their pink slips last week concurred, nor is it likely they felt like chanting the company name as they left the building.

Not much economic news will get released this week. However, on Thursday, Dec. 23, at 4:30 p.m., just 7½ hours before Christmas Eve, we'll get the weekly balance sheet update from the Fed. It could suggest how its QE2 program, to inject cash into banks, is doing.

So far, QE2 hasn't driven down rates. But the Fed's timing this week is certain to lower interest -- in the release.

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