Conventional wisdom holds that typical U.S. shoppers are so traumatized by high debt and rising unemployment that their spending will remain subdued for years.  That means, the reasoning goes, that the world's largest economy will be mostly a follower in any global recovery. With consumer spending representing about 70 percent of gross domestic product, lackluster buying will hobble the U.S. expansion and provide little benefit for America's trading partners.

Don't believe it, says economist Susan Sterne of Economic Analysis Associates.  Consumer buying is already propelling the U.S. recovery and will continue to do so in 2010, she says.  Among other things, she expects car and light truck sales to rebound to 14.4 million units next year, up from 10.6 million in 2009, and housing starts nearly to double, from 585,000 in 2009 to 1.038 million in 2010. Total consumer spending should increase 4.8 percent in 2010, compared with a decline of 0.5 percent in 2009 (corrected for inflation, the figures are 3.1 percent for 2010 and a drop of 0.5 percent this year.) That should help foreign exporters of everything from PCs to cars to exotic cheeses.

We all know the story: The economic recovery has begun in the United States and the rest of the world, but it will be sluggish and disappointing. Shell-shocked and over-borrowed American consumers will spend less and save more. Financial markets remain traumatized, so don't expect much of a boost from new consumer lending or corporate investing. Global trade is rebounding, but slowly, from huge declines. The only question is whether the recovery will be W-shaped (a double-dip recession), U-shaped (a slow and shallow expansion) or L-shaped (bumping along at the recession's trough). Except now comes economist Michael Mussa with a simple message: WRONG.

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While Barack Obama was busy yesterday telling Wall Street to shape up, French President Nicolas Sarkozy spent this morning criticizing the entire economic status quo. The key issue in question: how the world tabulates economic growth, or GDP. We’ve always known that the metric was flawed; since GDP is simply a measure of all economic growth, things like natural disasters, traffic jams, and urban violence (all of which put people and money to work even as they wreak havoc) can actually raise a country’s overall GDP. But never has anyone seriously tried to come up with a better way to calculate growth. Until now: at the behest of Sarkozy, a team of superstar economists, headed by Nobel laureate Joseph Stiglitz, have just unveiled some new ways to tabulate a country’s economic health. See below the dispatch from NEWSWEEK’s Tracy McNicoll, who attended the unveiling of the Stiglitz Report in Paris this morning:

In the magnificent Grand Amphitheatre of the Sorbonne in Paris's ancient student quarter this morning, Sarkozy spoke to a group of modern economic luminaries and other guests, with backlit marble statues of great scientific philosophers like Descartes and Pascal peering down at him from their perches. He waxed lyrical about the band of experts he'd commissioned 19 months ago to redefine how economic well-being is measured. The result was a 300-page report that blends science and philosophy. Even its authors admit it is meant only to open the debate, not conclude it.

Sarkozy had initially called on the group in February 2008 to tackle the gap between people's perceptions of their own day-to-day economic well-being and what politicians and statisticians were telling them about the economy. The disconnection between the two has increasingly led to a lack of trust in government and politicians around the world. As Sarkozy put it today, “Nothing is more destructive for democracy.”

When the project began, virtually no one─with the notable exception, perhaps, of Stiglitz himself─would have guessed that there was a violent recession looming. But the crisis made the commission's work all the more relevant, as the world searches for a more sustainable way to grow in the future. “In an increasingly performance-oriented society, metrics matter. What we measure affects what we do,” Stiglitz said today. “If we have the wrong metrics, we will strive for the wrong things. In the quest to increase GDP, we may end up with a society in which citizens are worse off.”

The report recommends shifting economic emphasis from simply the production of goods to a broader measure of overall well-being, which would include the benefits of things like health, education, and security. It calls for greater focus on the effects on income inequality, as well as new ways to measure the economic impact of sustainability (climate change specialists like Nicolas Stern are members), and recommended ways to include the value of wealth to be passed on to the next generation into today's economic conversation. What it didn’t do is come up with a quick and easy new way to tabulate a new measure of wellbeing. Some of the necessary yardsticks already exist; others still need to be invented.

Still, Sarkozy said he plans to shop the report all over the world. “France will open the debate on this report's conclusions everywhere. It will put it on the agenda of every international conference, every meeting, every discussion where building a new economic, social, and ecological order is the objective,” he told the Sorbonne crowd. “France will fight for every international organization to modify their statistical systems by following the commission's recommendations. It will propose to its European partners that Europe set the example by putting them into action. [France] will adapt its own statistical machinery in consequence,” he promised. Even the commission's rapporteur admitted he wasn't expecting Sarkozy's strong reaction.  

Stiglitz himself has been championing the cause for some time. He recalled this morning how, as head of President Bill Clinton's Council of Economic Advisers, he had put forward some of the same ideas. But, says Stiglitz, “We met such political resistance that our initiatives were thwarted.” In Sarkozy, Stiglitz has found a better advocate─perhaps in no small part because France’s own economic health would look a lot better using the alternative metrics.

Here’s a rare bright spot as a result of the global financial crisis. The World Bank’s Doing Business Report, which tracks how easy or hard it is to start new businesses in various countries around the world, is just out today, and more countries than ever are slashing red tape around starting businesses. Even as governments are getting more heavy handed in regulating banks and financial institutions, they are lighting things up for entrepreneurs – government reforms aimed at making it easier to start a company are up 20 percent this year, the highest jump since the survey started in 2004.

What’s interesting is that poor countries have taken the lead  – Eastern Europe, Central Asia, and Africa are cutting the time and money involved in starting new businesses most quickly, in large part because they’ve been hit hardest by the financial crisis. “For developing countries, this is a jobs crisis that effects their real economy – their policy moves are all about trying to create new jobs,” notes Neil Gregory, one of the World Bank directors who worked on the project. Even the Middle East and North Africa, areas traditionally reluctant to liberalize, are encouraging more business-friendly reform thanks to the collapse in oil prices from their high in the summer of 2008.

Will the tide turn once the good times are back? Unlikely, say World Bank experts – once countries start down the path of red tape cutting, there’s usually little impetus for them to reverse laws, since the job growth tends to lead to new jobs and thus new tax revenue. Good news for bureaucrats everywhere.

If you're chairman of the Federal Reserve, you don't get paid to spread gloom and doom. So, not surprisingly, Ben Bernanke had some uplifting things to say in today's speech at the Kansas City Fed's economic conference in Jackson Hole, Wyo. The economy is "beginning to emerge" from its deep global recession, he said. A year from now, we will have seen "substantial progress" toward a sustained economic recovery. Standard boilerplate.

But there was reason to take note. Bernanke's speech constituted his most extensive and aggressive argument that the Fed's actions—along with those of other central banks and government agencies—had averted what could have been another Great Depression. Almost simultaneously, the announcement of an unexpectedly large 7.2 percent increase in sales of existing homes in July seemed to vindicate optimism—and the stock market reacted accordingly, with the Dow closing up 1.6 percent to more than 9500. Victory, it seems, has been snatched from the jaws of disaster.

Still, with Bernanke's term as Fed chairman expiring in January, it's hard to read this speech just as an analysis of the crisis.

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Readers will be forgiven for not feeling like the economy is in recovery─American trade is down, unemployment is nearing 10 percent (closer to 20 in some parts of the country, if you count people who’ve stopped looking for work), and housing foreclosures are higher this year than last. Yet the global economy recovery is upon us, according to the number crunchers. The IMF just raised their projections for global growth to 2.5 percent from 2 percent─the first upward tick since the crisis began.

What’s really interesting to me is that U.S. is actually leading the recovery, in part off the back of our corporate profits, which are at record highs, despite the financial crisis. Of course, this again might not feel great to most folks. Why should bankers at “Golden Sachs” be taking home loot again so soon after a bailout? Yet the fact that at least some of the big banks appear to be back on their feet is actually good news for the larger economy. And in many ways, it speaks to how much better American policymakers handled this crisis than their European counterparts, despite stumbles along the way. Europeans are still doing stimulus in dribs and drabs and hoping the whole problem will go away.

Unfortunately for them, things will likely get worse in Europe before they get better. I spoke today with Chris Willliamson, chief economist for Markit, a global financial market research firm, who told me that rates of economic decline in Germany, Italy, and Spain are still comparable to the post 9/11 period. Things are not stabilizing in these countries─Spain is in the midst of a real-estate crash, Italy is risking sovereign default, and German consumers have their wallets zipped up tight, thanks to the fact that their big export businesses are in major decline. The French are holding steady, but only just. The entire eurozone is flat, as the U.S. and U.K. move ahead.

This is just the opposite of what folks were predicting six months ago. So much for the triumph of the Continental model of capitalism.

For more on the shape of the recovery in the U.S. and the rest of the world, check out our packages in next week's print editions.

Top White House economic aide Larry Summers gave a major policy speech at the Peterson Institute for International Economics today, but it had more to do with public relations than economics. The central message: WE DID IT! In other words, the U.S. economy has stepped back from the "abyss" of a second Great Depression, and we can thank President Obama's economic policies for turning the tide.

Summers' speech may mark the beginning of a major political struggle over who or what should get credit for an economic recovery, assuming that one gets under way later this year. Summers suggested that's what will happen, but Summers notwithstanding, it isn't necessarily clear that it will.

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How can we predict the next bubble? That’s the $64,000 question, and while nobody has an answer, Goldman Sachs made some interesting observations in a research paper they put out this week entitled “The Twilight Zone.” This is what the bank is calling the most sensitive period in the economic cycle, the one that comes right between a boom and a bust.

Previously, economic cycles were basically thought to have just two parts─theoretical models that the rocket scientists in major banks use to try and forecast the future generally have a “boom” line and a “bust” line. But the Goldman paper posits another period─the Twilight Zone period─which generally lasts between a few months to a year. It’s during this tipping-point period that investors can find clues to the next bust.

But which of the many hundreds of commonly tracked economic figures should investors be looking at to predict the next crash? Probably whatever data point that was most important to supporting the boom in the first place. For example, the 1920s boom in America was supported by a credit expansion that led to a huge increase in consumer spending (sound familiar?). But several months before the stock market crash, factory outputs of things like cars had started to decline sharply─a sure sign that consumers had stopped spending, and black clouds were on the horizon.

The same thing goes for other crashes, like the Latin American debt crisis, in which capital flight began a year prior to the various sovereign defaults, and the Asian crisis, which investors might have foreseen had they been looking at the sharp fall in external reserves in Thailand (which had attracted some of the hot money fueling the region’s boom).

Of course, hindsight is 20/20. But this report serves as a reminder that where you see smoking hot assets, you may very well soon see fire.

Even Dr. Doom seemed to be all sunshine and lollipops yesterday. Nouriel Roubini, one of the few economists to accurately predict the magnitude of the economic crisis, told a Chilean investors’ conference in New York that "the freefall of the economy” is over. “There is light at the end of the tunnel," he said. "And the light at the end of the tunnel for once is not the one of an incoming train.”

You can probably guess what happened from there. As Wall Street whooped with joy, stocks promptly rallied. But before long, Dr. Doom was clearly agitated again. He put out a statement last night refuting overly hopeful media reports on his remarks:

“It has been widely reported today that I have stated that the recession will be over 'this year'” and that I have 'improved' my economic outlook. Despite those reports─however─my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context.

“I have said on numerous occasions that the recession would last roughly 24 months. Therefore, we are 19 months into that recession. If as I predicted the recession is over by year end, it will have lasted 24 months with a recovery only beginning in 2010. Simply put I am not forecasting economic growth before year’s end."

Still, whether he thinks the recession will end in December or January, it's significant that even Roubini is helping to solidify the shaky consensus that we might be looking at a bottom.

But read the entire release before you reach for the champagne. He also thinks a W-shaped recession is possible, which means we'd be dipping back down again in short order. What's more, he's emphatic that the recovery─no matter when the recession ends─ going to be long, slow, jobless, and generally miserable. So much for sunshine and lollipops.

Get ready for 10 percent unemployment. That's the message from the Fed.

Every quarter, the five members of the Federal Reserve Board and the presidents of the 12 regional Federal Reserve Banks give their best guesses about the economic outlook. The latest batch of numbers--released July 15--indicate that the Fed's gotten both more optimistic and more pessimistic. How could that be?

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The White House put out a release this morning announcing that Larry Summers will take to the stage at the Peterson Institute for International Economics this Friday to deliver a progress report on the economic crisis. Given how many waves Friday press conferences have been known to cause, should we expect high drama?

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It seems so. For the first time since June 2007, growth forecasts for the world’s rich nations are being revised upward, according to the latest OECD data. Also, some new figures from the IMF show that predictions of world GDP growth for 2010 are up by half a percentage point, to 2.5 percent. OK, that’s about half of what it was in the heyday, but we should still be thankful.

Despite all our problems, the U.S. is driving all this. We’re still the biggest kid on the block, with the most liquid currency. The U.K. and Japan are in recovery too, but the euro zone isn’t─growth there is still lagging, and things could very well get worse before they get better, given that German banks are exploding left and right, as is debt in most of the major economies.

But, as Martin Wolf notes in his very smart FT op-ed piece today, this recovery isn’t going to feel much like one. He makes the important point that the moral-hazard problem in banking has only gotten worse, given the huge bailouts. I’m personally very curious about just how Goldman Sachs managed to get those great profit numbers yesterday.

The other thing that worries me is that while this upswing is clearly great for companies─a number of global blue chips are awash in profits─it’s not good for labor. As most of us know, labor’s share of the global wealth pie has been decreasing relative to corporates’ since the 1970s. It looks like this recession may have sped up that trend. Jobless recovery, indeed. For more on what the recovery means everywhere, check out our package in next week's print issue.

McKinsey today came out with the latest version of its annual "Power Brokers" report, looking at the rise of four key players on the global financial scene: Asian sovereign wealth funds, petrostates, hedge funds, and private equity. This paper is chockablock with statistics that international investors will find interesting, but the key takeaway is this—power and money are shifting south and east much faster than we thought possible. Consider this, from the report:

"Although oil exporters and Asian sovereign investors were shaken by the crisis, they remain power brokers and are poised for future growth. In 2008, oil exporters and Asian sovereign investors invested $1.7 trillion in global capital markets, an average of $4.5 billion per day. Financial power will continue to disperse and shift from the West to other parts of the world, with the assets of oil exporters and Asian sovereign investors projected to grow twice as fast as those of other institutional investors through 2013 under a base-case scenario that assumes global GDP growth resumes in 2010. For policymakers and business leaders, these projections present a serious challenge: how to ensure that this surplus capital is invested in productive opportunities that will raise living standards, rather than contribute to future asset bubbles."

Hedge funds, meanwhile, are completely underwater (assets under management are down 25 percent from '07 to '08), and private equity is flat. If you had any doubt that the Asian century is upon us, this report should clear it up.

No U.S. metropolitan area has been immune from the financial crisis, but the impact has been highly uneven: some cities are already starting to show signs of recovery; others--notably in Florida, California, and Ohio--are still mired in the downturn. 

5.1  Percentage unemployment rate in Provo, Utah, the country's lowest.
17.5  Percentage unemployment rate in Modesto, California, the country's highest.
25  Percentage of the "Strongest 20 metro areas" that lie in Texas, with Austin, Dallas, and El Paso in the top five. 
70  Percentage of the "Weakest 20 metro areas" that lie in California and Florida, with Tampa; Stockton, California; and Sacramento, California, all in the bottom five.