Federal Reserve Chairman Ben Bernanke's assessment that the U.S. economy is experiencing a moderate recovery was bolstered on Wednesday by some positive corporate earnings reports and retail sales data.
Intel Corp., the first major technology company to report results for the first quarter, said it earned $2.4 billion or 43 cents per share, beating analysts' expectations. JPMorgan Chase also beat Wall Street expectations in announcing a first-quarter profit of $3.3 billion, or 74 cents per share.
Meanwhile, the Commerce Department says consumers are increasing their spending: In March, retail sales grew 7.6 percent compared with a year ago and 1.6 percent over February. Economists expected a monthly increase of 1.2 percent.
The Fed reported on Wednesday that "economic activity increased somewhat" in all of its regions -- except for St. Louis. This marks an improvement since early March when the Fed's survey, known as the Beige Book, noted that nine regions had modest economic advances. The latest survey suggested that consumer spending, which accounts for the lion's share of national economic activity, is helping to propel the economic recovery.
Despite these developments, many analysts aren't ready to say the economy is healthy.
"There is a tendency right now for everybody to get perhaps overly enthusiastic," says Dennis Jacobe, chief economist for Gallup. "The economy has struggled for a long time. The latest economic data is all pretty positive, particularly compared to where we were a year ago. But I think it's right to be kind of cautious at this stage because we're comparing it to a very bad situation a year ago."
Bernanke's Optimism
In his remarks to the congressional Joint Economic Committee on Wednesday, Bernanke sounded an optimistic tone, expressing confidence that the economy will continue on the path to recovery even after the sizable government stimulus fades. He said that economic data suggest that increasing demand by both consumers and businesses "will be sufficient to promote a moderate economic recovery in coming quarters."
Bernanke said the risk of a "double dip" recession, whereby the economy would start to contract again, has receded from where it was just a few months ago. But the steady rate of unemployment -- 9.7 percent -- for the past three months, still remains a concern.
Bernanke said he was encouraged by 162,000 jobs that were added in March -- the most in three years. But the economy's moderate pace of recovery means that the more than 8 million jobs that were lost during the recession won't be restored quickly.
Bernanke also addressed the looming problem of the federal deficit: "Although sizable deficits are unavoidable in the near term, maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance."
Dean Baker, co-director of the Center for Economic and Policy Research, remains concerned about how Bernanke's comments regarding the deficit might be interpreted by members of Congress to mean that a short-term fix is in order.
"He's really pushing the deficit lines," Baker says. "I really worry that that's counterproductive. I really worry that we're in an environment where we're going to need more stimulus."
An Unusual Month
Retailers benefited from a number of positive factors last month. Most Easter sales occurred in March (the holiday was more than a week later last year). Dismal weather in February also made it a bad month for comparison.
Gallup's latest polls indicate that Americans' self-reported spending increased 7 percent in March, compared with March 2009.
Jacobe, Gallup's chief economist, says he was especially disappointed by the overall decline in spending among people in the upper income bracket. Those with annual incomes of $90,000 or more cut spending by 7 percent in the past year.
"Until you get jobs and upper-income people spending you have to be cautious," Jacobe says.
Kimberly Picciola, a retail analyst for Morningstar, says she is seeing a detectable shift in consumer behavior.
"In 2009 consumers were very focused on buying what they needed and not on nonessential goods," Picciola says. "But now we're hearing retailers talk about how they're seeing increased spending on discretionary items."
Despite a slight improvement over February, consumers remain concerned about business and labor market conditions, according to The Conference Board's March Consumer Confidence Survey. Consumers claiming conditions are "bad" decreased to 42.8 percent, from 45.1 percent.
Still, Intel executives said they were encouraged by a surprising trend in personal computer sales for the first quarter: Companies are starting to upgrade their workers' laptops, unlocking corporate budgets that had been frozen during the recession.
But when it comes to overall corporate earnings, Baker says, "Projections going forward aren't hugely optimistic."
Is The End In Sight?
The Business Cycle Dating Committee of the National Bureau of Economic Research, a nonprofit organization founded in 1920, said on Monday that it had yet to identify the end of the recession.
The committee, which comprises several economists, is responsible for officially calling recessions. And it typically weighs in several months after the fact -- once the members have had an opportunity to analyze a broad range of statistics. Even though the committee said "most indicators have turned up," it didn't want to make what it called a "premature" call.
With additional reporting from The Associated Press
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