The recession is over! Probably.
We will continue to feel the pain of the recession for many months to come, but the leading indicators are showing that we hit bottom already or soon will. A recovery will come in spurts, but we will see a gradual climb in economic activity and growth starting this summer or early fall.
To understand that the recession is over, you need to understand the difference between a leading indicator and a lagging indicator. The former indicates the level of future economic activity, while the latter shows us the depth of past economic inactivity. Housing is a leading indicator. Employment is a lagging indicator. Thus, we will see high unemployment for some time, and those data will reflect the passing recession.
Each day, more and more financial experts and economists are publicly stating that the recession is over, and the data show that to be the case. For example, new housing inventory data are showing improvement in the housing market. Historically, unemployment figures do not recover for six months after the end of a recession. So, if the recession just ended, employment likely will not start to rise again until the end of 2009, or in early 2010. Layoffs are already starting to slow down, and new unemployment claims are starting to bottom out. Large employers are increasingly reluctant to lay off talented workers, although hiring has not increased yet.
Unfortunately, the insanely high levels of federal borrowing and spending, most of which will not start until 1010, will throw us into a period of high inflation and a “echo” recession in two to three years from now. The good news is that this recession has ended, and better times are months, not years, away. The bad news is that federal spending is going to trigger a subsequent recession and devalue assets held today. The really bad news is that the federal government will be broke in 2011 (It’s already broke, to be accurate.) and will be unable to repurchase debt to control inflation. So, the Federal Reserve will have no choice but to choke growth and try to slow inflation with high interest rates. Inflation is the next hurdle we will have to clear, before the economy can fully recover.