Real estate agent Dave Gervase recently witnessed an astonishing spectacle: a bidding war for a house in South Florida. What Gervase saw was an extreme example of a nationwide phenomenon: signs of life in the battered housing market and the overall economy.
Housing prices rose 2.9% from the first quarter to the second — the first quarterly increase in three years, Standard & Poor's reported Tuesday. Meanwhile, a business group announced Tuesday that amid signs of economic improvement, consumer confidence rebounded this month.
The S&P/Case-Shiller Home Price Index and the Conference Board's consumer confidence index were the latest reports to suggest that the U.S. economy is staggering toward recovery. The progress is agonizing, and many ordinary people won't see the payoff for a while. The Congressional Budget Office expects unemployment to rise from July's 9.4% and average double digits next year.
But for all the caveats, the signs of recovery strike many economists as a huge relief. After the collapse of Lehman Bros. last Sept. 15, the United States and the world seemed to be teetering on the edge of a second Great Depression. And some say the improving outlook vindicates the aggressive actions taken since last fall by Federal Reserve Chairman Ben Bernanke. A student of the economic cataclysm of the 1930s, he slashed interest rates to zero and pumped hundreds of billions into the financial system.
President Obama is sold. Taking time off his vacation in Martha's Vineyard in Massachusetts, the president announced Tuesday that he would reappoint Bernanke when his first four-year term as Fed chairman expires in January. "Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and outside-the-box thinking that has helped put the brakes on our economic free fall," Obama said.
Bernanke "has done a first-rate job," says S&P economist David Blitzer. "The risks were incredible, and the Fed had to step in."
The Fed chief "deserves a significant amount of credit for ending the recession," says Mark Zandi, chief economist at Moody's Economy.com. "If he hadn't acted as aggressively and creatively as he did, we would still be in a recession, and we'd be talking about a depression."
Long climb ahead
Even so, the economy is a long, long way from a full recovery, and Bernanke has plenty of critics. The Congressional Budget Office predicts economic output will fall 1% this year and unemployment will average 10.2% in 2010. Housing prices are still down 30% from their 2006 peak, household incomes are shrinking, employers are still cutting jobs and consumer confidence is struggling back from rock-bottom levels.
Critics say Bernanke was slow to see trouble brewing, as President Bush's chief economic adviser in 2005 and as Fed chairman. By not moving faster to counter the economy's slide, Bernanke made "a huge, huge mistake," says Dean Baker, co-director of the left-leaning Center for Economic and Policy Research in Washington D.C. "And millions of people are suffering for it."