Now, where did I put that Second Half Recovery?

Do you remember at the beginning of the year, all the analysts and econofolk were talking about how things would get better in the second half of 2003? They were using words like “significant challenges” and “tech replacement cycle” and “effects of tax cuts.” I remember this. I also remember that various members of this tribe have been predicting a recovery 2 quarters out since late 2000.

Thisyear’s big reason was based in the IRS depreciation schedule. A lot of companies bought computer equipment back in 1999 to avoid Y2K issues. You remember Y2K, don’t you? All the computers were supposed to freak out, thinking it was 1900 instead of 2000, causing nuclear disaster and tampon shortages? It didn’t happen. Then the dot-com bubble burst, flooding the used computer market (among other effects). Computers have gotten faster in the last 3 years, and there have been new versions of both Windows and Mac OS, but cash strapped companies have not been upgrading as much equipment as the Hewlett-Packards of the world would like. The IRS lets companies “depreciate,” or spread out the expense of computers. That means there is now a tax incentive to upgrade. Of course it is ludicrous to think the entire economy will magically heal just because a few companies buy some computers.

So then, if the recovery is about to start any minute now, why are the car dealers offering ludicrous incentives? Why is Mercedes offering 2.9% financing? Why are “if you have to ask you can’t afford it” names like Maserati and Rolex taking out print ads? Why does every apartment complex you pass have signs reading “Move In Special” and some ludicrously low number? You can’t blame that entirely on low mortgage rates, because there are lots of reasons to live in an apartment and “can’t afford a house” is the least of them. Why are the retailers with the best performance still the discounters like Target? Why are state and local governments — often dependent on sales taxes for revenue — having budget crises? California and Nevada both have entered the fiscal year without budget, in violation of their respective Constitutions, because of the untenable choice of cutting to the bone or raising taxes (negating federal tax cuts).

Don’t tell me this is a “jobless” recovery. If things are improving, there is more demand for products. The only way to sell more products is to produce them. That means hiring more people or buying equipment that makes your workers more productive. The tech sector which would provide that productivity equipment is still saying “within 2 quarters” and the government is still saying it’s a “jobless” recovery. It sounds more like a lack of recovery to me.