M. Ray Perryman. (File photo: RGG/Joey Gomez)

WACO, Aug. 5 - Sometimes when there is a flood of monthly or quarterly reports released that pertain to specific areas of the economy, there is a tendency to focus on one or two elements, whether good or bad, and attempt to color the entire picture with a single brushstroke.

It is somewhat similar to the old adage about the trees and the forest.
 
Such might be the case this week as numerous reports have been distributed regarding second quarter achievements, or lack thereof. In some cases, there has been an attempt to paint the picture of the nation’s economic recovery as rather bleak, with few signs of advancement. However, when the information is thoroughly digested and put in perspective so that the forest comes into full view along with the details of the trees, the situation does not appear as dismal as it is often portrayed.
 
Of course, there are some discouraging signs that cannot be overlooked. Foreclosures have not waned and there have been more warnings during the first six months of this year compared with the January-June 2009 period. In addition, about 20 percent of mortgage holders owe more on their homes than they are worth. But even that news had a silver lining: the hardest hit metropolitan areas have seen their numbers of foreclosures drop from a year ago, and the 10 metros with the highest rates have remained fairly steady over the past 12 months. In addition, numerous banks are continuing to modify loans to forestall future foreclosures.

Much attention has been given to the fact that nationwide mortgage applications have dipped in spite of the recent drop in loan rates to the lowest level in more than four decades. On the other hand, overall sales of existing residences are up, though there has been a tendency to purchase more economical and smaller houses, many of them available due to foreclosures. Moreover, the steep decline in home prices that has been so prevalent since the recession began in late 2007 now seems to be leveling off. The National Association of Realtors states that from the national perspective, the average price for an existing house in June was one percent higher than the same time period in 2009.
 
Consumer sentiment has recently been described as cautious, with the inference that purchases are being stalled due to concerns about the future. However, it may not be a lack of confidence that is making consumers hesitant to open their wallets and pocketbooks. Rather, it is more likely the fact that the amount of money available in them is less than in the past due to unemployment or other income effects and stricter credit availability. Thus, it seems to be a far stretch to classify the decline in the amount of dollars spent with the desire to stop shopping. It is more of a necessity rather than less confidence. 

Ironically, the lack of spending tends to impact all phases of the economy. Because consumers have spent less over the past quarter, the restocking of shelves has slowed, and the pace of recovery has lost some momentum. Still, overall economic activity in the manufacturing sector increased in July for the 12th consecutive month as 10 of the 18 manufacturing industries experienced growth. Furthermore, during the April-June timeframe, businesses invested the most in 13 years on equipment and software. In fact, outlays in this category have been solid, throughout the recovery, an excellent indication that sales growth is anticipated in the near future. During this quarter, for the first time in two years, spending by home builders and commercial construction companies also rose significantly.
 
Some media sources and analysts paid particular attention to the fact that the recovery has apparently lost momentum, with the economy (Gross Domestic Product or GDP) growing by only 2.4 percent during the second quarter as compared with 3.7 percent during the first three months of this year. Although the pace did dip, the emphasis could just as easily have been on the fact that the economy, after having suffered negative growth for most of the recession, began to gain strength in the third quarter of 2009, and the pace, though modest, is still on the positive side of the ledger. Even the huge gains in imports (which subtract from the GDP) suggest some willingness to spend.

Naturally, concerns about the economy linger, and it may be some time before the tempo of recovery picks up enough to create the jobs necessary to sustain economic prosperity. However, the outlook for the future is not nearly as bleak as some sources predict. That’s why I like to look at the big picture (the forest). Such an observation is more uplifting and enduring as compared to the temporary hurdles (just a few of the many trees) in our immediate view.

Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.

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