The Recession Is (Almost) Over -- What Now?

On Monday, Nobel-winning economist Paul Krugman said he expects the U.S. recession to end by September. The same day, the Organisation for Economic Co-operation and Development (OECD) published figures pointing to an economic "recovery" in its advanced member countries (which include the eurozone, the UK, the U.S., and Japan). Great news! No wonder U.S. stocks erased an earlier decline on the day.

Not so fast
Stock traders should be more wary. Krugman's follow-up comments in a speech at the London School of Economics yesterday were much less buoyant. Suggesting that the damage from the U.S. recession could last "for a very long time," he raised the specter of a "global version of the Japanese 'lost decade.'" (On the heels of a real estate bubble and a banking crisis, Japan muddled through the 1990s with anemic growth.)

Krugman also said that the end of the recession "doesn't mean the same thing as it did in the old days"; unemployment could remain stubbornly higher than in previous recoveries, for example. That dovetails with comments made yesterday by another respected economist, Robert Shiller, according to whom, the "new normal" rate of GDP growth could be 2% or lower (compared to 3.1% average rate throughout the 1990s).

Winners and losers in a post-crisis economy
In other words, even if the so-called economic "green shoots" turn out to be genuine, it won't be business as usual now that households and businesses have to get by without resorting to massive leverage. That's a painful conclusion for companies that benefited from "masstige" ("mass" + "prestige") marketing, such as Saks (NYSE: SKS  ) , Coach (NYSE: COH  ) , Tiffany (NYSE: TIF  ) , or Starbucks (Nasdaq: SBUX  ) .

Still, not everyone loses in this new environment: With consumers adopting a new sense of parsimony, companies such as Target (NYSE: TGT  ) , Wal-Mart (NYSE: WMT  ) , and McDonald's (NYSE: MCD  ) are seizing the opportunity.

Confused by this market? Ilan Moscovitz weighs in on the The Best Stocks to Buy in This Market.

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Alex Dumortier, CFA has a beneficial interest in Coach, but not in any of the other companies mentioned in this article. Coach and Starbucks are Motley Fool Stock Advisor picks. Starbucks and Wal-Mart Stores are Motley Fool Inside Value picks. The Fool owns shares of Starbucks. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (35) | Recommend This Article (56)

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  • Report this Comment On June 10, 2009, at 3:52 PM, madmilker wrote:

    duh! what are you smoking?

    cheap items from a foreign land put US in tis mess and you want more and more people to buy more and more.....dang! what if everyone jus set on their @ss and demanded made in America and told the insurance company's tat they had no need for the insurance plus every time a family member stumped their toe they chose to jus stay home and soak it in salt water....you reckin' the manufacturing base would come back at the same time those insurance company's dropped their rates which could coincide with tat hospital deciding not to ripe the @ss on the ones with insurance and tell the uninsured to pay up.....no....guess not! most you people jus don't get it anyway!

  • Report this Comment On June 10, 2009, at 5:05 PM, nerd1951 wrote:

    Add high inflation and the resulting high interest rates to this slow growth and you have what? The 1970's. It's dejevou all over again.

  • Report this Comment On June 10, 2009, at 5:15 PM, 7footmoose wrote:

    the recession may end but when will the recovery begin, the end of one does not automatically signal the beginning of the other and there is a great distance between here and a healthy US economy, we'll need to leap over tall buildings built of 9.4%+ unemployment and a national debt built of unimaginable promised dollars out of the Clown's Mouth, get used to it the world has changed and even Bill Gross and Mohamed El Arian don't know what constitutes the "new normal"

  • Report this Comment On June 10, 2009, at 5:29 PM, ehampson wrote:

    How can any practical economist state the recession is ending or will end by September? Unemployment is at a record 9.4% and probably higher; 7 million are unemployed and more are being added every day; the deficit is at an all time high of $189 billion; the national debt is $13 TRILLION; no one wants to loan Obama any more money so the FED is printing more; hyper-inflation will occur with the next several months; and Obama admitted yesterday the stimulus is not working and he wants to raise taxes and try again.

    To put a cherry on the top of this pile of rubbish orchestrated by Obama and the clueless Democrats, they are pushing to pass a Universal Health Care bill that will ruin the greatest health care system in the world and bankrupt this nation.

    Does Mr. Krugman live on this planet? Or have the years he has spent living in the make believe world of the NY Times totally warped his brain and distorted his vision of reality?

  • Report this Comment On June 10, 2009, at 6:05 PM, madisonmarbles wrote:

    Dear ehampson,

    If you feel the need to post, please give us some real economic insight rather than uninformed political rantings. Your real reason for posting here is evident by your absolutely astonishingly inaccurate numbers. 9.4% unemployment is no where near a record. During the depression, wasn't unemployent in the neighborhood of 25%? A deficit of $189 billion would be lovely right now. It's probably almost 10 times that. 7 million is probably about right for unemployment claims, but that is far different from the actual number of people unemployed. $13 trillion for the national debt is probably off by a trillion or two, but who's counting?

    If you need to vent politically, please find a blog on Fox or MSNBC. Let's stick to a sound economic discussion with sound data on this one.

  • Report this Comment On June 10, 2009, at 6:13 PM, TheGarcipian wrote:

    Sorry, Mr. Krugman. Normally, I'd give you more credence, but (unless you were taken out of context) you are wrong on this call. This Pollyanna mindset that Wall Street and its editors would like us to adopt can only carry us so far. I think September could be the month, but it won't be for pulling out of a recession -- no, no -- I think it's more likely that by that time, we'll know how much deeper in the poop we actually are, for the reasons listed above and many more.

    Thanks for the article though, Alex.

    --Gar

  • Report this Comment On June 10, 2009, at 6:51 PM, automaticaev wrote:

    Buy Waffles!!!!!!!!!!

  • Report this Comment On June 10, 2009, at 6:55 PM, robertf36009 wrote:

    Which unemployment formula are we using? Real unemployment is closer to 13% if we use the same U-6 numbers to calculate it that we used in the great depression. We keep spining the numbers to placate our debt holders (Chinees). While we have better safety nets in place now it's still getting worse. Believe me when these spin doctors try to make not as bad as expected good news watch your back. The cost of money just went up as bond markets price in additional risk posed by the abrogation of bankruptcy/contract law by the administration. I woulden't by any corporate bonds in the medical sector. They are the next target.

  • Report this Comment On June 10, 2009, at 6:58 PM, automaticaev wrote:

    Waffles are set to rise.

  • Report this Comment On June 10, 2009, at 7:42 PM, WasANichelender wrote:

    More BS...oh yea, Prez Obama's to blame, not that the Bushies had anything to do with it....jagbag.

  • Report this Comment On June 10, 2009, at 7:52 PM, xetn wrote:

    Citing Krugman as an economic guru is like calling Obama the Missiah. Lets just examine his remarks:

    He told Obama that he wasn't spending enough to get the economy moving. "We should be spending much, much more". If his prescriptions were right, Japan, with the highest debt of any modern economy in the world, has been suffering an economic malaise for over 10 years. Yeah, we should really listen to this idiot. He is the king of the Keynesian clan that got us into this mess. And the very same policies that they are using to try to get us out. Just wait until the banks stop building reserves, start lending and consumers start borrowing again and the currency will become the next Zimbabwe dollar.

    He is right on one count, don't expect too much from this so-called recovery.

  • Report this Comment On June 10, 2009, at 9:22 PM, roakus wrote:

    TheGarcian has it about right. from Canada northern peso country.

  • Report this Comment On June 10, 2009, at 9:39 PM, brwn8484 wrote:

    These are the very same economists that told us the world economy (and US) would be growing at a healthy clip.

    If you plan your investment decisions on these bozo's advice youd be broke right now and near financial ruin. Good thing I didnt listen to them before.

    I am sure not going to listen now! When will the average american wake up and use his own brain?

  • Report this Comment On June 10, 2009, at 9:45 PM, brwn8484 wrote:

    Keynesians + Obama + Ignorance = Marxism

  • Report this Comment On June 11, 2009, at 12:18 AM, curtwolters wrote:

    Wishful thinking, just like Wall Street. Sorry, Dr. Krugman.

  • Report this Comment On June 11, 2009, at 2:03 AM, mayhem4masses wrote:

    Obama this, and Obama that, that’s all you people do is gripe about Obama. Like things would be any different under McCain? Get real, there are several factors in play that have caused this economic downfall. Lets not forget that its not just the American economy in trouble right now, this is a global phenomena. Our rescission “officially” began more then 2 years ago, and the economy has been on a downward roller coaster ride since around 2001. So I ask you, how is that all Obamas fault? They said the same thing about Reagan in the early 80’s, and he was a republican, yet after taking office, with about 2 and half years of play time, which is 2 years longer then Obama’s been in office for those of you who cant add. He was able to turn things around. You can’t blame one administration or another for where we are, it’s not like unqualified and shifty CEO’s should be ignored, gas prices, the demise of American industry, inflation, horrible twenty-first century cars., the list goes on and on, but go ahead and blame Obama, because that’s just your answer for everything.

  • Report this Comment On June 11, 2009, at 8:00 AM, CarryOnAgain wrote:

    So Coach isn't going to do well in this new economic climate. Great! That was one of MF's star picks. Why is MF so incoherent and self contradictory? I paid a fee for these so called top stock picks and now it implies that was all wrong? Don't MF realise that this kind of conflicting signals undermines their credibility. Is Coach a value investment or isn't it?

    Madisonmarbles, you really sorted that guy out, pointing out his politically motivated rants. You really had me going - until I read your last line: "If you need to vent politically, please find a blog on Fox or MSNBC." Something about pots and kettles comes to mind.

    As for Krugmans report, all he's saying is that the recession will probably end in September. What does that mean? No more than that the economy will stop contracting. His main point is not whether September or December will be the month, as much as that the US will suffer sub par growth. He cites 2% max. I think probably less. The reason is obvious and doesn't take a nobel laureate to figure out. The 5 year period up till 2007 experienced supercharged growth but this was financed by ever increasing credit. That debt resulted in a level of spending that gave price signals to industry to produce. Unfortunately and obviously it was unsustainable. There now exists a surplus of production as well as a mass of debt. This has to be unwound which is the reason for the sub par growth for many years. I hope Obama has considered this if he hopes to "Grow" his way out of public debt.

  • Report this Comment On June 11, 2009, at 9:10 AM, linschaf01 wrote:

    Who the heck is saying the recession is over? Not in Michigan any time soon! Too many people loosing their jobs daily and the gas prices going up daily is not helping us in Michigan. Where do they think the money is coming from and this is half the reason why their is so much crime in Michigan at this time. We need change and we need our jobs back and we do not need inflation. We need to bring the gas prices down because we are paying more for gas than Massachusetts and we have less money to spend. When are we going to see a change????

  • Report this Comment On June 11, 2009, at 1:05 PM, brwn8484 wrote:

    “[Earl Warren’s Supreme Court] wasn’t that radical. It didn’t break free from the essential constraints that were placed by the founding fathers in the Constitution, at least as its been interpreted and Warren Court interpreted in the same way, that generally the Constitution is a charter of negative liberties. Says what the states can’t do…what the Federal government can’t do…"

    Quote by Barak Obama

    Ingredients for a Marxist Socialist State = Toss out constitution restraint by activist judiciary + sprinkle in convenient financial crisis + add liberal dose of keynesian federal spending to soothe the poor and ignorant masses + add few cups of ignorance to sweeten the pot........ and voila we are just like the rest of socialist marxist countries ruled by statists dictators.

    "The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."

    John Maynard Keynes

    Its intersting that the very people who are running our government have bought into the marxist philosophies of a man who knew that only one man in a million would know why (or how) their freedoms and money were being taken away.

    "I like bats much better than bureaucrats. I live in the Managerial Age, in a world of "Admin." The greatest evil is not now done in those sordid "dens of crime" that Dickens loved to paint. It is not done even in concentration camps and labour camps. In those we see its final result. But it is conceived and ordered (moved, seconded, carried, and minuted) in clean, carpeted, warmed, and well-lighted offices, by quiet men with white collars and cut fingernails and smooth-shaven cheeks who do not need to raise their voice. Hence, naturally enough, my symbol for Hell is something like the bureaucracy of a police state or the offices of a thoroughly nasty business concern."

    CS Lewis

  • Report this Comment On June 11, 2009, at 2:30 PM, madisonmarbles wrote:

    Dear CarryOnAgain,

    Pots and Kettles? How is it that I was doing what I am asking ehampson and others not to do, which is use this as a political forum? My point is that if I want politics, there are plenty of sites to visit.

    On this site I like to read and hear about what people are thinking about the economy, as long as it's grounded in a sound basis.

  • Report this Comment On June 11, 2009, at 3:42 PM, Big50Shooter wrote:

    I like Waffles!

    ;-P

    LoL....

  • Report this Comment On June 11, 2009, at 6:30 PM, brwn8484 wrote:

    Hmmmm....Mskes me wonder why all the negative chatter increases when boy wonder is held up to same scrutiny as everyone else.

    All are created equal... some are created more equal. Something smells extremely bad when only certain viewpoints or comments are allowed. Seems to me that almost all our economic problems trace back to our leaders. Too bad we dont have freedom of speech anymore. I guess Rush and conservatives are correct!

    Talk about censorship!

  • Report this Comment On June 11, 2009, at 11:42 PM, drericrasmussen wrote:

    When Boy Wonder is held up to scrutiny he doesn't seem perfect but he is doing pretty well. When he entered the office the place was in a shambles with both auto firms headed for bankruptcy (but the GM CEO didn't realize how urgent it was) and the banks and insurance companies on the ropes.

    It will take a long time to repair the damage. But massive ships turn slowly and some regions (such as Michigan) will be bleeding for a decade. Krugman's concern is that we must lower our expectations about future growth. I'm more upbeat. Although our imports have grown rapidly in this decade so have our exports. I think investors should focus on firms which have a major part of their sales abroad, especially in Asia. Just now I'm living in Bangkok. No recession here.

  • Report this Comment On June 12, 2009, at 7:17 AM, TMFTomGardner wrote:

    CarryOnAgain, there is not one single voice at The Motley Fool. We don't ask our staff to toe a line and agree with any single advisor's opinion. The net result is that you will see competing opinions across our site and services. Hope that helps. Thanks for the note.

  • Report this Comment On June 12, 2009, at 7:29 AM, CarryOnAgain wrote:

    Tom,

    thanks for your reply. I was playing devils advocate. As the old legal phrase comes to mind, let the buyer beware.

    Madisonmarbles,

    point taken. I assumed (wrongly) that you were taking a snipe at Fox news because they have a certain political slant. Sorry about that.

  • Report this Comment On June 12, 2009, at 2:25 PM, madisonmarbles wrote:

    CarryOnAgain,

    No worries:)

  • Report this Comment On June 12, 2009, at 5:51 PM, alexxlea wrote:

    The stock market has been closely correlated with the expansion of debt. WIthout debt expansion there would have been little growth in the market. Essentially there has been no real growth in the markets, as reflected by the expansion of P/E's but not real earnings minus bogus profits driven by financials, real estate, etc. feeding off of an ever-expanding debt base that have evaporated and won't come back anytime soon.

  • Report this Comment On June 14, 2009, at 1:18 AM, ShadowLogistis wrote:

    I can't believe anyone but Congress is to blame. And as much as it hurts to say I don't just blame Peloise. Every President wants to report to the people home ownership is up and Congress wants to ride the coat tails. So they make it easy to get a home loan, no money down or a loan for $200,000.00 to someone who makes 7.00 an hour. They make banks loan people money who cannot pay it back, minorities must get loans or its racism. Then when things go bad Which they must do with a plan like this everyone pays. Our system is broken and untill people vote for the right people not just reelect person it will stay broke. Term limits will work

  • Report this Comment On June 14, 2009, at 3:52 AM, foolbear57 wrote:

    one waffle please

  • Report this Comment On June 14, 2009, at 4:43 AM, MAURIZIO400 wrote:

    , brwn8484

    liked your post thanks for postin it.

  • Report this Comment On June 14, 2009, at 9:38 PM, 7jspnc wrote:

    I almost liked BBY but when I checked on the "insider trading" report, not a single director or board member is buying. It tells me they have no confidence in heir own business!??

  • Report this Comment On June 15, 2009, at 7:46 PM, Varchild2008 wrote:

    It's not about the economy it's about your portfolio...It's about fundamentals. If the fundamentals of your portfolio economy are strong then you can sit back, relax, and not bat an eyelash at the onslaught of Communism.

  • Report this Comment On June 15, 2009, at 7:57 PM, plange01 wrote:

    actually the recession in the US ended about 6 months ago since that time we have been in a depression.build as much cash as you can for when times get really bad in a few years from now and just wait. all you can do for the next 3-5 years....

  • Report this Comment On June 17, 2009, at 3:15 AM, Oversoul00 wrote:

    brwn8484

    You posted

    ---

    "The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."

    John Maynard Keynes

    ---

    As if to say that Keynes thought this himself ot that he promoted this view.

    While Keynes did say that, he was actually quoting Lenin.---http://en.wikipedia.org/wiki/John_Maynard_Keynes#Allegations...

    The difference between your insinutation by quoting someone out of context and being as transparent as possible is HUGE

  • Report this Comment On June 22, 2009, at 6:19 PM, AustinAndy wrote:

    Mr. Krugman is apparently a big believer in Keynesian economics. That did not work in the 1930s and it will not work now. Government priming of the economic pump is a bad short term fix with a massive inflation hangover. Government interference in the capitalistic economy is a large contributor to the economic mess that we are now in. President Obama's "cure" is more of the same, only much more massive. Can anyone provide the name of a successful country whose economy was managed by the central government? Thought not.

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