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By INVESTOR'S BUSINESS DAILY | Posted Friday, August 07, 2009 4:20 PM PT
Economy: July's drop in the jobless rate sent a flutter of optimism through the financial markets that the economy is starting to recover. But don't let the politicians fool you into thinking they had a role in the improvement.
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Businesses shed "just" 247,000 jobs in July, far fewer than the 330,000 most economists and Wall Street analysts were looking for. As bad as that still sounds, July's toll was only two-thirds the monthly average since December 2007, when the recession began.
Also, the unemployment rate ticked down from 9.5% to 9.4%. Most observers thought it would rise a tenth of a point or two. More encouragingly, the number of actual unemployed fell for the first time in 15 months.
As First Advisors economists Brian Wesbury and Robert Stein noted, "businesses increased the number of hours per worker, and the total hours worked did not decline" for the first time since the financial panic hit last September.
All good news.
As we noted several times earlier this year, it looks like the third quarter will see a turnaround in the economy, with GDP expanding 0% to 3.5% for the summer period.
What makes us so optimistic?
To start, the Federal Reserve's own favorite gauge of future growth, the yield curve, shows virtually no chance that the economy will still be in a recession by year-end "” and a more than 90% chance the downturn will end this summer.
The plain fact is, a recovery was baked in the cake as 2009 began. The main reason was the Fed went pedal to the metal on money creation in December, slashing its benchmark fed funds rate to zero.
Since then, the monetary base "” the most basic money supply controlled by the Fed "” has grown at an average yearly rate of nearly 100%. That's the biggest sustained rise since the Fed began in 1913.
More to the point, the stock market has had a fairly sustained rally since bottoming on March 9. Since then, share prices have added more than $3.6 trillion to shareholder wealth, a chunk of which will likely be spent in coming months.
As such, we're bracing for the inevitable self-congratulatory back pats from the White House and Congress, lauding their own economic stewardship for pulling us back from the abyss. On Friday, President Obama said his policies "rescued our economy from catastrophe" while building "a new foundation for growth."
Don't believe it. Claims that higher taxes and a total of $2 trillion in stimulus, TARP and bailout spending this year have turned the economy around are unconvincing. Indeed, they're farcical.
As economist Casey Mulligan noted on the New York Times blog after dissecting second-quarter GDP data, total stimulus at the state and federal levels amounted to about $12 per person. That's stimulus?
Suggesting that government is responsible for what looks to be a rather weak recovery is an insult to all the small private companies and millions of laid-off workers who bore the brunt of bad government policies over the past two years.
We'd rather they just thank us and go their way.
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