Paulson's message is lost on the market

It’s encouraging that the stock market rallied recently on the days when President-elect Barack Obama’s transition staff announced or leaked names of people on his economic team.

Particularly after it tanked on days when Treasury Secretary Henry M. Paulson Jr. provided updates on the massive federal effort to fix what’s ailing the financial sector.

If you believe that a big part of business and investing is confidence, then investors seemed to be expressing confidence in the people being chosen and the broad outlines of how an Obama administration will tackle the credit crisis and all-but-official recession.

But bear in mind that saying you’ll do something and doing it are separate actions.

We’ve spent the last three months watching Paulson say one thing, then do another. That’s a credibility problem, and when we think someone has no credibility, we stop listening.

Paulson told Congress that it was imperative to move toxic mortgage-related assets off banks’ balance sheets in order get credit markets functioning again. But one month into the $700 billion Troubled Asset Relief Program, he said the federal government would not be buying those assets. Instead it would inject capital into banks to strengthen them and encourage lending.

Even if the switch was the better strategy, his inability to articulate what needs to be done to repair the financial sector has been disheartening. At a time when decisive action was needed, we got action, lots of it, but little of it felt decisive.

Don’t get me wrong. I’m not saying that there were easy solutions and that Paulson & Co. just blew it. The results of most of the actions taken by Treasury and the Federal Reserve won’t be known for months. It takes that long for changes in monetary policy to course through an economy.

I hold no illusions that Timothy Geithner and the rest of Obama’s economic team will flawlessly execute their strategies. But leaders do well when their message is clear, and markets thrive when muddled messages are a minor annoyance rather than a major impediment.

Down, flat, down

The Federal Reserve Bank of Philadelphia releases a monthly report on the change in economic activity of all the states.

A number of factors go into what it calls the state coincident indexes, including payroll employment, average hours worked, and the unemployment rate.

The coincident index for Pennsylvania for October fell 0.5 percent, the 10th month in a row it’s fallen. The Fed calculates the index is down 3.7 percent for the last 12 months, the worst such stretch since the period ending January 1992.

For all the gloom expressed in New Jersey, the state’s economic activity has remained flat over the last 12 months.

As for tiny Delaware, well, its coincident index is down 2.4 percent over the last 12 months. Not as bad as Pennsylvania, but it’s the worst 12-month reading for Delaware over the history of its index, which began in January 1980.