A new hope?
While it’s way too soon to sound the all clear, analysts see some cause for optimism behind the latest government effort to restore credit markets to working order. All it took was another $800 billion.
It’s no quick fix, but by backing consumer lending, the U.S. Federal Reserve and Treasury Department are concentrating on the most important segment of the U.S. economy. Gary Balter, a retail sector analyst with Credit Suisse, summed up his assessment in a one-word headline: “Finally.”
“The steps being taken today may slow the bleeding but more job losses will occur into next year. We do not see an escape from that. However, what has changed on the margin in the last two days is that the government is doing what needs to be done to unfreeze the credit markets, which points to hope and a potential bottom to the economic issues in 2009. As we show inside and is well known, there is a very high correlation of consumer spending with availability of credit.”
(More analyst comments are here.)
Not that we needed another reminder of how bad things are, but Tuesday’s gross domestic product figures showed just how sharply consumers have pulled back. Consumer spending fell 3.7 percent in the third quarter, further than initially reported and the biggest drop in 28 years. Economists predict at least two, possibly three more quarters of declining GDP, but perhaps now the recovery will be more robust.