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April 17th, 2009
10:59 AM ET

Green Shoots and Glimmers

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2009/images/04/17/art.wallstreet.jpg]
Paul Krugman
The New York Times

Ben Bernanke, the Federal Reserve chairman, sees “green shoots.” President Obama sees “glimmers of hope.” And the stock market has been on a tear.

So is it time to sound the all clear? Here are four reasons to be cautious about the economic outlook.

1. Things are still getting worse. Industrial production just hit a 10-year low. Housing starts remain incredibly weak. Foreclosures, which dipped as mortgage companies waited for details of the Obama administration’s housing plans, are surging again.

The most you can say is that there are scattered signs that things are getting worse more slowly — that the economy isn’t plunging quite as fast as it was. And I do mean scattered: the latest edition of the Beige Book, the Fed’s periodic survey of business conditions, reports that “five of the twelve Districts noted a moderation in the pace of decline.” Whoopee.

2. Some of the good news isn’t convincing. The biggest positive news in recent days has come from banks, which have been announcing surprisingly good earnings. But some of those earnings reports look a little ... funny.

Wells Fargo, for example, announced its best quarterly earnings ever. But a bank’s reported earnings aren’t a hard number, like sales; for example, they depend a lot on the amount the bank sets aside to cover expected future losses on its loans. And some analysts expressed considerable doubt about Wells Fargo’s assumptions, as well as other accounting issues.

Meanwhile, Goldman Sachs announced a huge jump in profits from fourth-quarter 2008 to first-quarter 2009. But as analysts quickly noticed, Goldman changed its definition of “quarter” (in response to a change in its legal status), so that — I kid you not — the month of December, which happened to be a bad one for the bank, disappeared from this comparison.

I don’t want to go overboard here. Maybe the banks really have swung from deep losses to hefty profits in record time. But skepticism comes naturally in this age of Madoff.

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Filed under: Economy • Paul Krugman • President Barack Obama • Raw Politics
soundoff (5 Responses)
  1. Annie Kate

    Thanks for reminding us that the show isn't over until the fat lady sings, so to speak. It would be nice to think banks have recovered and will continue to recover quickly, but it feels like a forlorn hope at best because of the job market numbers and the fact that foreclosures continue on. We spent our way into this mess; we shouldn't assume its going away and respend ourselves into a deeper mess. Its time, regardless of when the recovery comes, to live within our means; that should be the norm not the unusual.

    April 17, 2009 at 8:24 pm |
  2. earle,florida

    Yes, I to am curious how an entire( Dec/08 disappears) month ,and calender year ends,versus the annual fiscal year. There was approx.a $5bn snafu with a "Utal Industrial Bank" purchased by Goldman Sachs that kept the real story from the press,and no one seems to care,the government,the SEC,the oversite committees of congress,and certainly not their intimate lover Fed.Reserve Bank/FOMC,..? Oligarch who's-who must know what's best! Pathetic

    April 17, 2009 at 2:30 pm |
  3. Kevin

    we don't need the media (that's you) to continually perpetuate doom & gloom warnings about the economy. we know it's bad and we're in a recession. thanks for the brilliant observation sherlock.

    why do you insist on stamping out "glimmers of hope" that will positively influence consumer confidence and incrementally steer the economy towards recovery?

    April 17, 2009 at 12:35 pm |
  4. Terry, TX

    Well I guess we will just call it another catastrophe or crisis....so that these democratic representatives can come up with more trillions to cram through entitlement programs and Pork and campaign contributors ....all in the name of saving the economy. As American taxpayer....I don't think so. Why wasn't the money properly spent in the last two months? Hey these bills weren't even read and then Chris Dodd and the administration approved AIG bonuses when that had been taken out...guess what....Fannie and Freddie just got bonuses....watch out for the next contrived crisis....let's just live it alone...

    April 17, 2009 at 11:33 am |
  5. Michael "C" Lorton, Virginia

    I wouldn't get to excited-–they are either new "sparks" from the economic flame-out or the last "sparks" before the fire goes completely out--let's hope the best--and blow very gentle on the cinders.

    April 17, 2009 at 11:12 am |