After the Dow Jones Industrial Average (DJIA) cracked the 11,000 mark on April 12, some are asking if the economy is back. And while some want to credit President Barack Obama for this so-called recovery, is this financial market rally a true indicator of returning economic prosperity?
The anchor of "NBC Nightly News" asked just that question, pointing out the cover of the April 19 issue of Newsweek magazine that pronounced "America's Back!" On his April 12 broadcast, Brian Williams asked CNBC's David Faber if it was a little premature to make that declaration.
"I'm looking at the copy of Newsweek magazine out today," Williams said. "It says America's back and we have this classic disconnect. We hear numbers out of Wall Street. We see covers of magazines like that. People watching at home, millions of people in the grips of unemployment and poor financial times wondering when they're going to start feeling some of this."
The story the Newsweek cover is advertising is by Daniel Gross. To be fair, the article doesn't really claim that we've recovered from the current economic malaise. However, it points out that the U.S. economy throughout history has been cyclical and, despite the naysayers, has always come back. But as for a short-term prognosis, Faber doesn't see America quite "back" just yet, as unemployment remains high.
"And that's the key question for this economy," Faber replied. "Far be it for me to seem unpatriotic, but one has to wonder in some ways. Economic growth from here is going to be dependent in part on the U.S. consumer. Seventy percent of our economy is consumer spending. Unemployment still remains very, very high."
Faber explained that disconnect with the stock market and the general economy is that these corporations have discovered how to become more productive and that has led to a reduction of operating cost, which has translated to a higher stock price.
"We're going to hear a lot from corporate America in the next few weeks about how much money corporations made, because they have done well," Faber continued. "That's why the stock market has been up. But they've done well in part because of productivity gains. They fired a lot of people in 2008 and 2009. They found they can do more with less. The question will be when those corporations actually get back to hiring."