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McQuiston: Economic Recovery Beginning

12/21/09 5:55PM By Timothy McQuiston
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(HOST) Commentator Timothy McQuiston is neither hedging nor speculating when he says that this Christmas may be merrier for the economy than anticipated several months ago.

(MCQUISTON) A friend of mine who's a manager at a major Vermont-based retailer was asked by company executives recently when he expected business to get back to normal. His response was Christmas 2010. He was unsure of what exactly normal would look like when we finally got back to it. But he was quite sure it would not look like the old normal.

Conventional wisdom says that once the economy fully rebounds, Americans will not return to the halcyon days of consumer gluttony. We will not jack up our credit cards and empty the equity in our homes. We will be more frugal. And all Americans will be like Vermonters, and even more so here.

There's no chance the economy anywhere in the world will look like what it did even two years ago. Government regulations will be stiffer in an attempt to stifle rampant speculation. After all, it was speculation that caused most of the economic grief. It will also take individuals, financial institutions and, to a lesser extent, businesses a long time to dig out from under the trillions of dollars of debt we've accumulated. At some point soon, the federal stimulus money will run out, and the feds will not be able to keep throwing money at the economy. The economy will have to manage further recovery on its own.

Generally, economists have said that the U.S. economy will bottom out the fourth quarter of this year, and Vermont will bottom out the first quarter of next year. There will be only sluggish job growth. This seems, at least nationally, to be right on target. Vermont might not warm up until the weather does in the second quarter. However, the economists appear to have over-estimated how bad the unemployment rate will get.

For instance, the Vermont unemployment rate has kept going down from a peak of 7.4 percent last May. It might not even get back up over 7 percent before job growth finally returns next year. We've just learned that Vermont's unemployment rate actually went down another smidge in November to 6.4 percent. There was even a little bit of job growth. With all that said,  it doesn't seem very likely that it will go up to 8 or even 9 percent as some economists were predicting earlier this year.

To me, the economists were clearly too optimistic in the middle part of this decade and now are just as clearly hedging their bets the other way.

The new consumer reality will include more frugality, certainly, and retailers will have to adjust; even more of them will disappear. Debt, however, will not go away immediately, and production costs, especially in China, will continue to rise. Cheap stuff won't be as cheap.

But even in Vermont I doubt very much that frugality will evolve into austerity. I'm also sensing some pent-up demand. This would mean a merrier Christmas for retailers - this year - than even my friend was anticipating.
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