The Recession Will End… Later this Year

Says who: Richmond Federal Reserve President Jeffrey Lacker

“It now appears as if the pace of contraction is diminishing, and at some point later this year, activity will bottom out and begin expanding again.” (via Reuters)

Why it might be false: Well, for starters, how about those rising interest rates? Rates on 30-year fixed mortgages increased to 5.79% last Wednesday – that can’t be very good for the single family housing starts which have risen steadily since a low in January. And we think that generally, Lacker’s just a bit too U.S.-centric and myopic. Let’s not forget, the Treasury Secretary Timothy Geithner just met with his G-8 counterparts. The U.S. economy is not an island, it’s entangled in the global one – for better or for worse. Any prediction on the recession’s end can’t ignore international market indicators like a record loss of 1.22 million jobs in the 16-country euro zone in the first quarter.

Why it might be true: We’re not about to call these “green shoots,” exactly, but it seems like good omens that new jobless claims and consumer spending are no longer in freefall. Also, ten big banks are expected to start repaying the government bailout funds, a big sign considering that the financial industry played a big role in the creation of this crisis. On the global front, there are also some positive signs from China with industrial output increasing 8.9% and retail sales up 15.2%, at least according to the Chinese National Bureau of Statistics.

Our call: The end of the year is not completely unrealistic given the positive shifts in unemployment, consumer spending and banking, but it also depends both on how domestic and international factors play out. Either way, we’re going to have a little faith that the bank repayments are good signs that an industry that helped create the crisis will try to redeem itself and lead us out of it.

Are We Getting Suckered?

When I was a little girl, I loved going to the bank with my mom because they always had suckers. Today I’m wondering if we are the suckers after the results of yesterday’s bank stress tests. The Treasury department gave all 19 major banks a passing grade based on economic assumptions that many find a wee bit cheerier than we have any right to expect in terms of housing prices, unemployment, and other factors. Did the public get hoodwinked into thinking that all is well in bank-land?

Some are taking the stress tests as a sign that the recession is slowing. In a New York Times op-ed, Geithner sounded confident, crowing that the tests “should advance the process of repairing our financial system and provide a better foundation for recovery.” But market analyst and commentator Marshall Auerback…