Up 500

THE BE YOUR OWN ECONOMIST ® BLOG

No sooner did the Dow slip below 11,000 on Tuesday, it rebounded almost 500 points in the last couple of days.

Is the slump over?

Probably not. The stock market jumped because oil slipped and some financial firms did well in the second quarter. That raised hopes that inflation might subside and the financial sector rebound, and that both developments pointed the way to recovery.

But those hopes may be premature. The downturn is no longer encapsulated in housing. Autos and business capital expenditures have begun to weaken or show signs of weakness. If all three legs – housing, autos and business plant and equipment expenditures - are knocked out from under, overall spending will collapse, dragging the remainder of the economy down, too.

It’s too soon to celebrate.

© 2008 Michael B. Lehmann