• Stress Tests, Economic Indicators, and the Light at the End of the Tunnel
  • May 22, 2009
  • Law Firm: Blank Rome LLP - Philadelphia Office
  • Call it green shoots or mustard seeds or hope, but according to some of the nation's leading economic experts, the outlook for the American economy is improving. These experts are venturing the opinion that the economy has hit bottom and the recession is ending. Some of the evidence cited is the fall in unemployment claims from March to April; the first quarter increases in consumer spending and consumer prices; and the stabilization in sales of existing and new homes over the past couple of months. Even Federal Reserve Chairman Ben Bernanke sounded optimistic (for a Fed Chairman) about the recovery. During testimony before the Joint Economic Committee this morning, Bernanke said, “We continue to expect economic activity to bottom out, then to turn up later this year.” Although he qualified his statement as dependent on a restored and healthy financial system, that too could be interpreted as a positive sign since the Fed is supposed to go over stress test results with the affected banks today.

    Bernanke did not comment on the test results, but media leaks suggest that ten of the 19 banks will need to find more capital. The results are not supposed to be publicly available until later this week, but markets rallied somewhat yesterday based on White House spokesman Robert Gibbs’ comments that the administration does not anticipate needing more financial bailout money from Congress and suggesting the banks will be able to raise private capital.

    Since unemployment is a lagging indicator, most experts predict it will be a few months before people feel the effects of an economic upturn. If the economy is pronounced in recovery by the fall, it will be far enough into his presidency that President Obama will likely receive appreciable credit . The potential return to better times could add momentum to a major administration priority: health care reform. Despite the White House Chief of Staff’s strategy of capitalizing on a crisis, we suspect the White House will find it is much easier to score congressional victories when there is hope on the horizon rather than fear.