'Green shoots' and men's briefs: divining the economic future

I have been traveling quite a bit this summer and everywhere I go, a single question seems to pop up. My taxi driver in Auckland asks about "green shoots" and economic recovery in America. Waiters in Germany want to know if the banking crisis is nearing an end. Ukrainian hotel managers are interested in real estate values in Florida. Everyone, it seems, wants to know if things have finally started to get better.

A number of economic indicators suggest that things nationally are starting to recover, albeit slowly and fitfully. Locally, the picture is murkier, but some hope is emerging. We can still expect hard times for a while, however, especially on the job front. The stimulus package and the Troubled Asset Relief Program (TARP) package for banks are stabilizing things a bit, but relatively little of that money has reached us here in the north country.

National media have been trumpeting some good news — housing prices are finally going up again, manufacturing and durable goods orders are picking up, and consumer spending has begun to rise. Most of these cheerful stories are based on economic indices — statistical creations that try to track a set of consistent factors over time. An index can be a useful tool for understanding economic activity or conditions but can also overlook some key factors.

Nationally, housing prices did rise in July, according to something called the Case-Schiller Home Price Index. The index measures home prices in 20 major national urban markets. It was at a high of 205 in the second quarter of 2006. It was below 140 this June and rose slightly in July, triggering multiple media announcements that housing prices were starting to recover. Our local housing market is not included in this index, however, and our prices are very localized and more likely to be affected by troop levels at Fort Drum than anything else.

According to the ISM Index of national manufacturers, the number of manufacturing firms reporting growth is on the rise and is expected to be over 50 percent in August. The index bottomed out in December at 32.9 percent. The last time it was over 50 percent was in January 2008.

All that really means is that we have seen significant volatility in the last 18 months and that slightly more firms are reporting growth than reporting contraction. Of course, all the firms that have gone out of business are no longer reporting at all, so take this index with a grain of salt.

Consumer spending did rise 0.2 percent in July. Durable goods sales rose 1.3 percent while nondurables dropped 0.3 percent. Many of the durable goods purchases seem to be automobiles — spurred by the Cash for Clunkers stimulus plan. That is good news and exactly what the stimulus program was supposed to accomplish, but the program is over so it is not clear that those gains will continue next month.

Personal savings rates are still almost twice what they were in July 2008, and unemployment remains high. It is not clear how much more spending we can expect from consumers for a while.

The national unemployment rate dropped to 9.4 percent in July. Before we declare victory, however, it is worth noting that unemployment rates compare the number of people who are looking for a job to the number who have one. The people who have given up looking and decided to move back home with their parents or go back to school are no longer on the list, making the numbers look like they are improving when they are really getting worse. Many experts are predicting the August number to be around 10 percent.

Locally we are seeing nonseasonally adjusted rates of under 8 percent for Jefferson and Lewis counties and 9.9 percent for St. Lawrence County. Those numbers can be expected to rise as winter sets in, however.

New York state seems to have done pretty well on the federal bailout list. We got $175 billion or almost 37 percent of the total $476.5 billion disbursed under TARP, intended to bail out troubled banks and other financial institutions. That is about $9,000 per person in the state and is a reflection of the importance of Wall Street. A number of major banks have repaid that money, so they can go back to paying hefty bonuses.

That is good news for the federal treasury and also for us, as Albany gets to tax those bonuses. There are still more than 400 banks on the official "troubled" list, however, so things still look grim.

In the tri-county area, the U.S. Treasury reports that 17.1 percent ($453.8 million) of our local bank deposits are held by banks receiving TARP funds. That suggests that most of our local banks are in pretty good shape, but the federal bailout is still helping some of our local branches stay afloat.

New York state also is expected to receive $25 billion in other stimulus money, with $17.49 billion coming in the 2009-10 fiscal year. In theory, that should easily plug the governor's projected $12 billion deficit, but much of that money is for off-budget items that would not have been bought if we didn't get the money. Only a portion of that money has been received or spent to date, in any event, so much of the promised stimulus is still waiting for us.

The north country is projected to receive $34 million in transportation infrastructure spending, but only $20 million has been certified to date. We are not on the list for any major energy projects, but will receive our share of Medicare and other social program spending. Most of the spending is going elsewhere, but we are getting some money in important areas of our economy.

Perhaps the most promising general economic index, however, is the MUI or Men's Underwear Index. Developed by the NPD Group, a consumer research firm, the MUI tracks spending by men on underwear. The average man buys 3.4 pairs of underwear per year, but in recessionary periods we sometimes cut back, preferring to shift spending to other necessities. While the MUI has dropped considerably since last summer, the rate at which it is dropping — the second derivative of the drop (it's a calculus reference; ask a math teacher or bright college student what it really means) — is leveling off. Commerce Department household spending figures reflect no real difference in underwear spending between national and local rates. Boxers or briefs, we may well be seeing better times ahead in Northern New York.

So are we seeing green shoots? Nationally, yes. Locally, not really, but we can expect them soon. We are still facing a long, hard slog to full recovery, and many of the jobs lost in this recession will not be recovered at all, as businesses have learned to operate more efficiently. When we do recover, however, we will create new jobs based on the more productive infrastructures and leaner and more competitive business models we have created. We will never return to the economic conditions we saw before the recession, but that doesn't mean we won't see new growth and opportunities.

Greg Gardner is an associate professor of business at SUNY Potsdam. His column on business issues in the north country is published monthly in Money Matters. E-mail him at ggardner@wdt.net.