“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 the end of the year, 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.” (July 16, 2009, via RGE, Recessionwire)
Whether you agree with Larry Summers that “everybody agrees that the recession is over,” or you’re perhaps still feeling a bit of the pinch (or even extreme pain, see increase in folks on food stamps, jobless rate, etc.)—at least this much is true: everyone’s looking for the new “r” word: Recovery. Here’s how we think it lays out:
There are also glimmers of economic strength in the fact that hedge funds had a strong year and big bonuses were distributed on Wall Street.
Signs recovery is here: The fourth quarter of 2009 didn’t look half-bad. Layoffs dropped to a mere 11,000 for the entire month of November, compared to hundreds of thousands in previous months. That was accompanied by a slowing of unemployment benefit distributions, though that could be a dubious indicator, as it may simply reflect those whose benefits period had run out. We also saw a strong month for manufacturing in the last month of the year, ticking up to 55.9 on the Institute for Supply Management’s index, from 53.6 in November. There are also glimmers of economic strength in the fact that hedge funds had a strong year and big bonuses were distributed on Wall Street. Don’t agree? Consider, the upside is that those earnings get spent on goods and services. Good old trickle-down.
Signs recession is still here: The word on the street is that real estate is going to get worse before it gets better. Economist Robert Shiller, following the most recent Case-Shiller Index, anticipated further fallout in the housing market as prices drop another 5 to 10 percent (good for buyers), foreclosures glut the market (even worse for sellers) and the mortgage market remains a mess following the government’s loan modification program that is undergoing a major backlash. As a result, Shiller and others have formed a growing chorus of those concerned we’re in for a double-dip, or W-shaped recession.
On the jobs front, things are not much better. Despite a flattening of job losses, the market isn’t expected to return to full health until 2015. It’s also worth noting that there is a new category of the “underemployed,” reflected in part in the rising number of part-time workers. A part-time salary doesn’t typically cover a mortgage signed under a full-time salary. What’s more, things have become very bad in some groups of the population: There are those living on food stamps alone. Generally, the outlook by economists is again growing bleak.
Bottom line: Roubini was right on target with his economic growth prediction, but even his RGE Monitor produced a pessimistic outlook on the housing market two weeks ago, concurring with those who point out the 30 percent drop in home values since 2005. There’s no denying that real estate will be painful for a bit, and that the jobs market is going to be a struggle. These two areas, combined with a need to loosen the credit market, will make 2010 a tough year, unfortunately. However, if we’ve learned anything in the past year, it’s been about ourselves. We know individually what we’re capable of, we’ve learned to find our own solutions, and most of all, we’ve learned we can live through this. No one needs more of the same tough times to wear on frayed nerves, but we’ve got the inner resources to come out stronger than ever. That may be the truest sign that the recession is over.