We’ve been there before only to end up disappointed. Could this time be different?
One day the recession will end and we’ll put a floor on the economy’s deterioration. Are we there yet? This week offered several reasons to cautiously answer “yes,” or perhaps it’s better to say “maybe.”
Today’s news certainly offers one more reason to think that stability may be returning. Both new housing starts and new building permits issued rose again last month, the U.S. Census Bureau reports today. For the second month running, both series scored respectable gains.
Save for Wednesday’s news that industrial production continues to slide, this was a modestly good week for dispensing numbers in favor of the idea that a trough in the business cycle may be near if it hasn’t already arrived.
Yesterday delivered another encouraging number for initial jobless claims and on Wednesday we learned that the deflationary threat, if it isn’t dead, looked mortally wounded in the wake of news that consumer price inflation was bubbling. Add to this some other positives, starting with the ongoing liquidity injections by the Fed, a la, extraordinarily low interest rates, and you’ve got some positive catalysts that may signal better times ahead, or at least less-painful times.
So, what’s not to like? Well, for starters, even if the technical end of the recession is here, as we think it is or will be soon, that doesn’t quickly translate into meaningful economic growth. As we’ve repeatedly discussed on these pages, we expect an unusually long interim period of subpar growth between the crisis of the recent past and a true recovery worthy of the name that presumably awaits down the road. And that’s our positive scenario.
The darker outlook is that all the good news of late turns out to be statistical noise in an ongoing recession that continues to destroy wealth and keep the forces of stabilization at bay. That view looks increasingly unlikely, but no one really knows if we’re merely in a transition phase that fools everyone into thinking that the bottom of the cycle has been reached. It’s important to keep in mind that as mere mortals, we’re inclined to take the latest data point and extrapolate into the future. But as the chart above shows, even a bounce that lasts for several months running barely begins to repair the massive damage that has occurred over the past year or so.
It’s also worth reminding once again that even if the recession has technically ended, the labor market promises to remain weak for some time. The magnitude of what’s unfolded recently virtually assures that a quick rebound in jobs creation will have to wait, probably until well into 2010. The labor market’s always the last to join the rebound party, and that rule goes double this time around. Therein lies the biggest obstacle for a consumer-dependent economy a.k.a. the United States.
So, yes, we’re encouraged by this week’s numbers, but we also recognize that we’ll need additional confirmation of the trend in the months ahead before we break out the champagne.