Recovery? Really? These 3 C’s shift reply toward ‘no’

2 comments August 22nd, 2009

The way I see it, there are three fairly significant hurdles in the path of any real economic recovery, which is why I’m truly puzzled over the joyous proclamations that we’re well on our way.

As I’ve said before, there are reasons for optimism in the wake of some better-than-expected reports in the past few months.

But here’s what I don’t get: How can we be well on our way to economic Elysium with three unpredictable wild cards still floating around out there?

In a nutshell, and in no particular order, call them crude, credit and consumers.

Start with crude. To paraphrase Leon Uris’s “Exodus,” if the kingdom of heaven runs on righteousness, the kingdoms of Earth runs on oil.

It’s been the most volatile global commodity in the past year, spiking to $140 a barrel last summer, dropping to $40 or so by December and settling lately around $70. If it spikes again, fearful consumers will pull back.

The culprit, of course, was supply and demand. Emerging markets, such as China and India, began their explosive growth in the boom years, all of which required a steady supply of crude oil.

When the bottom fell out of the global economy, growth fizzled, as did the demand for oil.

But that growth will begin again. And when it does, those developing nations will recover their thirst for oil.

Even if the growth is only a steady swing, oil prices are going to rise again. And they will keep rising. It will have a significant effect on the U.S. economy, which consumes a quarter of world production every year.

Then there’s credit. Or rather, there isn’t. Much.

Certainly, financial institutions no longer are in the full-scale lending retreat that struck in October and froze the world’s economies for months.

But for all practical purposes, lending remains stunted. And credit is to businesses what gasoline is to your car: It’s the business community’s lifeblood. It can run on its reserves for a while. But at some point, you have to fill it up again.

It’s going to have substantial consequences for any sort of recovery.

And consumers? Surely by now you’re aware that consumer spending has made up 70 percent of the economy.

To put it another way, the national economy is an engine running at 30 percent power without it.

There have been few signs of growth in consumer spending. And still-rising unemployment numbers don’t inspire a lot of confidence, anyway.

Rockford stores suffered worse than most in May, with revenues dropping 13.7 percent compared with May 2008. That marked the largest year-over-year decline for Rockford.

Stillman Valley, Polo and Oregon posted declines of more than 20 percent, Mount Morris’s revenue was off 36 percent, and South Beloit’s was down a drastic 41 percent.

The government’s stimulus spending and consumers buying necessities might boost the engine’s overall output to 60 percent. But to me, that’s not recovery. It’s more of a refurbishment.

Without those three factors added to the equation, I don’t see a recovery anytime soon.

And given how unpredictable they are, I don’t see how anyone else can, either.

Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.