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Monday, June 15, 2009 10:40 AM


Premature Excitement


The good news is the recession is over.

Well not quite, not just yet. However, so many are cheering the event in advance that I put on my party hat, tooted my horns, threw confetti, and I even launched bottle rockets in celebration. It was a sight to behold.

Yes, I am clearly excited.

However, given that I do not want to cause premature excitement of the masses, I am duty bound to report the bad news: When the recession ends, it will not feel like it. I was cheering technical determinations, not the fundamental happenings.

Slow Growth Will Follow

Inquiring minds are considering Recession May Be Followed by Years of Slow Growth.

The good news is the worst recession in half a century is almost done. The bad news is it will take years more for the U.S. to return to its potential growth rate, according to Morgan Stanley’s co-heads of global economics.

“There still are financial headwinds” and consumers and businesses still need to trim their borrowing, Richard Berner, a former senior economist at the Federal Reserve, said in an interview. “We’re going to see pretty slow growth in spending in the next few years.” The perils listed by Berner and colleague David Greenlaw dispirit even the most ardent optimist.

A muted recovery would follow the weakest performance for U.S. gross domestic product, unadjusted for inflation, since the 1950s. The recession’s damage to the labor market has sent the share of Americans who are employed down to 59.7 percent, a level unseen since 1984, Labor Department data show.

Berner and Greenlaw, who are based in New York, forecast that the world’s largest economy will not start growing until the last three months of this year and that the gain in GDP in 2010, at 2.2 percent, will only be about two-thirds of the average growth rate over the last four decades.
Case for an "L" Shaped Recession

On August 8, 2008 (before it was even admitted the US was in recession) I made the Case for an "L" Shaped Recession.

If the Fed and Congress drag this out, which at this point seems likely, we will see a severe "L" or "WW" shaped recession playing out over several (or more) years.

An "L" or "WW" (in and out of recession for years) now seems a given. Housing is not going to come roaring back nor are jobs. On Thursday, October 25, 2007 in When Will Housing Bottom? I forecast a possible bottom in 2012.

Note that the current boom has lasted well over twice as long as any other. If the bust lasts twice as long as any other, 2012 just might be a rather optimist target for a bottom.

I see no reason now to change from my 2012 target made in 2007. Moreover, when housing does bottom, do not expect miracles. The last bubble (housing, credit) is never reblown. Inquiring minds may wish to consider Market Bottom? What Market Bottom? for an exploration of that idea.

Jobs Look Bleak

There is no driver for jobs. A repeat of the 1990's internet revolution is not in the forecast (at least not mine). Nor is a repeat of the Greenspan housing/credit boom of 2003-2007 in the works.

Calculated Risk has an excellent series of sobering charts about jobs and the aftermath of recessions in Jobs and the Unemployment Rate.

Recessions and Jobs


  • In 1981 as the recession ended, jobs immediately picked up.
  • In 1990 the unemployment rate continued to rise for 15 months after the recession ended.
  • In 2001 the unemployment rate continued to rise for 19 months after the recession ended.

This was the largest credit boom in history as well as the largest housing boom in the history of the world. Furthermore, Peak Credit and her twin sister Peak Earnings have arrived. On top of that, boomers headed for retirement are attempting to downsize.

Unless another internet bubble or housing boom is in the works, the odds of another huge jobs boom are anemic at best. Therefore, expect unemployment to rise for AT LEAST a year after the end of the recession is announced.

Let's be realistic: premature excitement is in the air. Don't succumb to it no matter how much confetti anyone throws.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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