Water Cooler Finance: The End Of The Recession

By Michael Deane | September 27, 2010 AAA
Water Cooler Finance: The End Of The Recession

Last week left investors and many others in an optimistic mood. To start things off, the National Bureau of Economic Research (NBER) announced that the recession has been over for more than a year; this release left many scratching their heads thinking "well, did anyone tell that to the stock market or the employment rate?"

This announcement came on a good week, with the housing market showing some strength, and the Dow climbing steadily from Monday to Friday. The job market still has a ways to go, and Blockbuster had some bad news, but for the most part this week was pretty positive – which is a nice change. (Miss last week's news? Catch up with Water Cooler Finance: Poverty Rates Increase - And So Do Millionaires.)

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Recession's Over, Stocks Take Note
Some big news came out this week, as the National Bureau of Economic Research, which is an independent group made up of economists, announced that according to its data the recession ended in June of 2009. That's right, the longest recession since World War II has been over for more than a year. This means that we have actually been emerging from recession since then, but does not mean that the occurrence of double-dip recession is impossible. Double-dip recession has become a popular term - especially with the economic news that's been happening over the past two months.

The same day that this news was released, stocks hit a four-month high, closing at 10,753.62. This was the highest level since May 13. The Dow dipped on Thursday, but by the end of the week the Dow climbed even higher, closing at 10,860.26, after rising 1.9% on Friday alone. The Dow ended the week 2.4% higher.

Mixed Economic Data
Part of the negative economic news that sent stocks down on Thursday was a stagnating job market. Unemployment was basically flat for August. The Labor Department reported that 27 states had increasing rates, 10 had no change and 13 had decreasing unemployment. The other reason for the falling markets was more doom and gloom from Europe. Ireland's GDP report showed GDP falling in the second quarter. This brought in more worry that Ireland would not be able to pay back its debts. Ireland is one of the seriously economically troubled nations in the EU, along with Spain, Portugal, Greece and Italy. This drop in the markets, however, led to a stabilization in the US dollar - albeit at the expense of a falling euro.

You asked the bad news first, right? On to the more positive economic news! It seems strange that the housing sector should be a source of good news, but this week saw some very positive housing news. Housing starts, the amount of new housing construction projects, were up for August, and so was the amount of existing home sales. So, does this positive news mean that stimulus spending is working?

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High-Level Departures
Dr. Lawrence Summers, the Director of the White House National Economic Council, has announced that he will be stepping down from this position to return to Harvard, where he previously served as president of the university. Summers was often at the center of the Obama administration's economic planning, including the stimulus spending, so we'll keep an eye on whether this change will have any impact the current economic platform. Tellingly, the Fed announced this week that it is ready to step in with more stimulus spending if the economic environment worsens.

… Aaaand Cut
It seems like it's been a long time coming, as video rental franchise Blockbuster has been struggling to adapt to online and delivery DVD and game rentals for years now, but this American-based chain has finally filed for bankruptcy. The company, which has more than $900 million in debt, will continue to run during the bankruptcy proceedings. The filing puts the company on the path to reorganization and will hopefully result in it re-emerging as a stable company.

Bottom Line
Aside from Blockbuster and the job market, this week featured a fair share of promising financial news. We'll see what the weeks ahead hold for the Dow and housing markets, but if they can sustain their recent gains and the unemployment rate dips lower, then maybe we'll all see what the NBER was talking about when it announced that we're no longer in a recession.

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