It has gotten to be pretty much consensus opinion that:
(1) the Great Recession is about to end, or already has
but
(2) the recovery will be weak and fitful.
That’s what Dan Gross’s cover story in this week’s Newsweek says, at least. I made the same claim in my column a few weeks ago, and one can find lots of bona fide economic forecasters telling us the same thing.
But just because something’s the consensus forecast doesn’t mean it’s going to happen. In fact, during times of great economic uncertainty like these it probably means it won’t happen. And while most of the out-of-consensus forecasts one hears about these days tend to focus on the bad stuff that could happen to derail hopes of even a modest recovery, things could go in the other direction too. Which is the case Tim Bond, head of asset allocation at Barclays Capital, makes in today’s FT:
The average forecast for third-quarter US gross domestic product growth is a weak 0.8 per cent, which would be by far the slowest first quarter of any recovery on record. Since 1945, the average annualised real US growth rate in the first two quarters of recovery is 7 per cent. History provides abundant evidence that the deeper the recession, the stronger the bounce. Even the recovery from the Great Depression conformed to this rule, real US GDP grew 10.8 per cent in 1934 and 8.9 per cent in 1935.
Bond says this about the job market, which is where optimists have been proved most wrong over the past six months:
[F]ew commentators consider the possibility that the large post-Lehman rise in US unemployment was a mistake on the part of panicky managements. Yet this is precisely what trends in labour productivity growth, not to mention common sense, tell us occurred. In the first half of 2008, labour productivity growth averaged 3.3 per cent, while the unemployment rate rose to 5.6 per cent. At that point, there was no evidence US companies were overstaffed. Thereafter, output collapsed, yet business productivity growth remained positive, registering an average yearly pace of over 2 per cent, as companies shed labour at a faster pace than they reduced output. Businesses, like markets, panicked after Lehman went under. Employment and output were both reduced far more than it turned out to be necessary, as businesses temporarily and understandably assumed a worst case scenario.
Just as global output is performing a V-shaped recovery, there is a big risk US employment will do the same, with monthly payrolls showing surprising growth by the end of 2009.
I find that awfully hard to believe, but perhaps that’s because I work in an industry struggling with some major secular troubles as well as cyclical ones. In any case, it’d sure be fun if Bond turned out to be right.
