COMMENTARY: Counting The Days
Where is a one-handed economist when you need one? Consider the developments of the past few weeks:
On the one hand, housing sales have shown surprising strength in October and November.
On the other hand, the newspapers are filled with layoff and bankruptcy stories.
On the one hand, the stock market has bounced back from its Sept. 11 traumas, bringing the Dow to within a hair’s breath of 10,000.
On the other hand, the market took a tumble in a couple of sessions last week.
On the one hand, retailers are now expecting a slightly better holiday season than was forecast just a few weeks ago.
On the other hand, consumer confidence keeps dropping.
On the one hand, the effect of dirt-cheap gasoline and paper-thin interest rates are providing enough of a stimulus for consumers to feel as if they can go out and spend.
On the other hand, the advertising outlook for newspapers, magazines and broadcasters remains bleak for another six months, perhaps longer.
OK, so which hands provide genuine clues to the $64,000 question: When will the recession break? In a sense, they all do, for no other reason than to point out the obvious that at this point in a downturn, there will be conflicting signals that are basically impossible to decipher. Some indicators are more reliable than others, some are lagging rather than leading, some are accurate but not very revealing.
And of course, everybody is now an economist, jumping to conclusions based on a daily onslaught of data muck. Just the other week a few sages were projecting a shallower-than-expected recession, based mostly on the Wall Street surge, a more than decent showing in car sales, and the apparent breakthroughs in Afghanistan.
Maybe they’re right. But there are risks in declaring that peace and prosperity are at hand. Witness Wall Street’s overwrought reaction to the Enron mess last week; a truly revived bull market would have quickly paid their sympathies and moved on. The spike in car sales would not have happened without benefit of zero percent financing, the home sales numbers only look good because of low interest rates (and even lower expectations), and as for Afghanistan, does anyone really believe that those nutty tribes and alliances are capable of putting down their guns and behaving as civilized human beings?
The point is, recessions are hard to pin down in real time. Only last week, the National Bureau of Economic Research finally determined that the contraction actually started nine months ago a point, you might recall, when many economists were still anticipating that the longest stretch of post-World War II growth would continue through 2001.
Needless to say, the bureau hasn’t a clue on when the recession will end. The best guess remains late spring or early summer. That would make it a 14- to 16-month event historically on the high side in length, yet not felt as deeply as, say, the recession in 1973-75.
But beware of predictions no one knows. And besides, an even bigger question than when it will end is how strong the recovery will be. Will it resemble the post-1991 period, when nationwide growth took off like a rocket? Or the post-1981 period, when growth barely sputtered back to life?
Answer that question correctly and you won’t need all those hands flailing about.
Mark Lacter is editor of the Business Journal.