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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

March 16, 2009 at 9:54 AM

Has the economy hit bottom, or can we just see it from here?

Top of the News: The Dow began the week with a strong morning, continuing gains from last week. The inevitable question is: Have we hit bottom? Nobody really knows whether this is the end of the scary slide in the economy or another pause before a new nasty shock (say, a mass of defaults in credit card debt). Recall that many eminent economists were saying after August 2007 that we’d seen the worst. If only. Fed Chairman Ben Bernanke says the recession will “probably” end this year if government stimulus and damage-control efforts continue. More bearish economists say we’re only halfway through, and a turnaround won’t begin until 2010 at the earliest.

What to look for? Some indicators are obvious: a stabilizing housing market; a floor under the downward spiral in consumer spending and even a rebound, and some predictability and soundness in the badly wounded banking system. Let’s add a few other markers. The labor market is critical — watch for next month’s unemployment report. The size and velocity of job losses must ease up to indicate a floor under this downturn. Layoffs are playing a critical role in the cycle of lost consumer confidence and wealth.

Little things can matter: metals prices have rebounded a bit, and inventories are being reduced. Watch the strength of the dollar and the demand for Treasuries — an important sign for the world’s biggest debtor. The “good” news is that the rest of the world economy is such a mess that the U.S. remains the best safe haven. Industrial production and trade continue to fall — until these turn around, there’s no sustaintable recovery in sight. Economists continue to worry about deflation, which among other things causes asset prices to fall below debt levels, while also fearing the Fed has baked inflation into the cake for later. (The Bank of England reports the U.K. is already seeing deflation). Either would kill a recovery in its crib. Whatever happens, the old highly-leveraged economy of the 2000s won’t return.

Behind the News: A new report from the Brookings Institution should be must reading for policymakers in metro Seattle. It appears in the spring edition of my friend Andrei Cherney’s Democracy: A Journal of Ideas. Called “Miracle Metros,” it discusses the disproportionate economic power that metropolitan areas have in the American, and world, economy — and it will only grow:

Though our economic development policies don’t reflect it, America doesn’t really possess a national economy, or even a collection of 50 state economies. Instead, America’s long-term prosperity stands or falls on the more local prosperity of its 363 distinct, varied, clustered, and interlinked metropolitan economies, dominated by the 100 largest metros–many of which cross county and state jurisdictions and incorporate multiple city centers, suburbs, exurbs, and downtowns in a way that the old hub-and-spoke model of urban geography never did. In that sense, America is quite literally a “MetroNation,” utterly dependent on the success of its metropolitan hubs.

The great competition will not be between, say, Seattle and Bellevue, but between metro Seattle and metro Shanghai. You can download a PDF of the report here.

Today’s Econ Haiku:

Work at AIG

You’re government employees

Make more than teachers

Comments | More in Outlook

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