Can a Recession Be Over If No One Believes That It Is?

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"Hmmm..."
"Hmmm..." Photo: iStockphoto

According to a report from the Commerce Department today, the GDP is up 3.5 percent in the third quarter, meaning that, technically, the economy is growing again and we're no longer in a recession. In theory, this is good news. But for some reason, nobody's clapping.

Because it still feels like a recession.

Though the Dow jumped a little bit on the news, it's still below 10,000. The jobless rate is still near 10 percent, and consumer spending only went up by 2.4 percent, which seems largely to be due to government programs like Cash for Clunkers. While the numbers are telling us everything is okay, the number of empty storefronts on our walk to work every morning is telling us something different. We may be out of the technical recession, but we're still in a psychological one. We can't just bounce back from last year: It was too traumatizing. The events of the past year have shaken people's confidence in the government, in economists, and in the system as we know it. Witness the rise in the price of gold, and the amount of investors who, the Times reports today, are keeping their money in cash because they've lost faith in the system.

Basically, the economy is like Peter Pan's Tinkerbell. We have to believe in it for it to exist. The numbers are encouraging, but employers aren't going to start hiring and consumers aren't going to start spending until they start seeing real evidence that the markets are working, without the assistance of the government. Maybe then we'll all start clapping our hands.

U.S. Economy Started to Grow Again in the Third Quarter [NYT]
Running Scared [NYT]
Don’t Break Out the Champagne Yet: Cause for Concern in GDP [Real Time Economics/WSJ]