Don't break out the champagne just yet

Dont break out the cham

By NITZAN COHEN
December 18, 2009 04:08
3 minute read.

 
X

Dear Reader,
As you can imagine, more people are reading The Jerusalem Post than ever before. Nevertheless, traditional business models are no longer sustainable and high-quality publications, like ours, are being forced to look for new ways to keep going. Unlike many other news organizations, we have not put up a paywall. We want to keep our journalism open and accessible and be able to keep providing you with news and analyses from the frontlines of Israel, the Middle East and the Jewish World.

As one of our loyal readers, we ask you to be our partner.

For $5 a month you will receive access to the following:

  • A user experience almost completely free of ads
  • Access to our Premium Section
  • Content from the award-winning Jerusalem Report and our monthly magazine to learn Hebrew - Ivrit
  • A brand new ePaper featuring the daily newspaper as it appears in print in Israel

Help us grow and continue telling Israel’s story to the world.

Thank you,

Ronit Hasin-Hochman, CEO, Jerusalem Post Group
Yaakov Katz, Editor-in-Chief

UPGRADE YOUR JPOST EXPERIENCE FOR 5$ PER MONTH Show me later Don't show it again

Let's not deceive ourselves. The US economy, despite an impressive recovery in the past few months, is still deep underwater. While politicians grab champagne bottles to celebrate encouraging unemployment data, great dangers lurk. The loss of only 11,000 jobs in November is the first real positive sign in almost two years. But the real situation is gloomy, and the impetus for the recent recovery is temporary. The main reason for the recovery is the restocking of inventories by retailers. Businesses suffered as consumers cut back spending. Families who saw their home values plunge, their salaries cut or vanish and their pension savings disappear were forced to cut their monthly budgets to the bare minimum while paying debts. Families like this make up more than two-thirds of the US economy. A cruel spiral began in which businesses facing a dramatic drop in sales stopped spending on inventories and personnel and slashed prices to lure customers. After more than a year of selling only old stock, the businesses that survived had to prepare for the holiday season, which usually accounts for up to 40 percent of yearly revenue. So over the past few months they cautiously ordered more merchandise from their suppliers. Factories that had been idle for months needed more workers, mostly temporary staff. An increase in hiring temporary staff is usually the first sign of a true recovery. But the period between that and committing to permanent positions is fraught with doubts, and firms hurry to get rid of the newcomers as soon as bad news reappears. Everything now depends on how businesses manage to sell their new inventories during the rest of December. Numbers for the first week of the month show a decline of about 18% compared to the first week of the season, which started with Black Friday, the day after Thanksgiving. Moreover, even if total sales for the holiday season improve slightly, or even modestly decline, businesses and consumers still face the rest of the winter. It could be that the massive federal economic-stimulus plan succeeded in preventing a collapse of the economy. Despite the future price Americans will have to pay for their enormous government deficits, the injection of hundreds of billions of dollars and the various incentives for the auto and real-estate sectors gave an emergency dose of oxygen that kept them alive. But all that money is peanuts compared to the trillions dished out to the banks starting in March 2008. The leaders of the world's largest economies tried to convince us that there was no other choice but to bail out those who created this crisis, and that the alternative would be total chaos. We can never really know what would have happened. What we do know is what the policy-makers should focus on now: aiding small businesses instead of the giants. It seems the folks in the White House finally get it. They are now committed to saving those small- and medium-sized firms, the backbone of the nation's economy. President Barack Obama recently declared that $200 billion out of the TARP funds, originally earmarked for banks, would now be allocated for programs to support small businesses. Another essential way to help these businesses is by granting them accesses to credit. Only a fraction of the money poured into the banks' balance sheets has found its way into the real economy in the form of new loans. This is outrageous and proves that the entire financial system should be overhauled. The Fed needs to take bold, immediate action, forcing the banks to extend credit lines to small- and medium-sized firms; otherwise, it won't be able to raise interest rates. Even if all these measures were to happen now, it would still take time for the effects to reach Main Street. Meanwhile, difficult times for businesses and consumers await. November's numbers might be spring's first swallow, but we need two of them. In this case, it might be safer to wait for three.

Related Content

The Teva Pharmaceutical Industries
April 30, 2015
Teva doubles down on Mylan, despite rejection

By GLOBES, NIV ELIS