Recovery trends.

How bad are things in the country today? You still have people who talk like the economy is completely dependant on Government stimulus and that when the stimulus ends it will collapse or have the second dip.

Now, the question that no one seems able to answer is how effective the stimulus actually was. If it is indeed propping up the economy, it would have had to be quite effective. However, much of it is still unspent and in other ways it was poorly targeted and potentially ineffective.

Now, clearly adding a great deal of money to the economy, even if done inefficiently will have some impact. However, was it enough to create all the economic activity we are now seeing? I'm not sure if there is any way to actually measure this, but it certainly doesn't seem so. We see that companies have reduced costs to return to profitability at lower revenue levels. We also see a rise in foreign demand that has helped the economy. Consumer spending, while not what it was is showing some signs of strength and we are starting to see some stability in housing.

The other factor is that the stimulus infused into the economy is not going to be withdrawn. It is there and will stop at some point but it will actually end much more gradually than many seem to think. Much of the stimulus went to prop up shortfalls in state government budgets and as economic activity picks up the increased taxes will eliminate the need for the stimulus.

Now, how strong will the recovery be? I think it will be stronger than many believe as a number of trends help the US economy more than most analysts predict. First, as we develop local and renewable energy sources the balance of trade will be better as we need less foreign oil. This will be gradual of course, but each increment of improvement will help to keep energy costs down and improve the balance of trade. Second, the dollar which has returned to levels it was at about two years ago, will probably weaken a bit more and make manufacturing more competitive in this country, especially with reduced energy costs. Finally, the changes in health care will lead to lower costs for small business and will also lead to lower rates of increase in health care costs.

As these trends progress, we will see them build on each other and the recovery will strengthen.