Not long ago the prospect of a second Great Depression was on the table. The economy was hurting. The market had lost some 40% of its value. Things were bleak.
As we enter fall -- the one-year anniversary of the financial storm -- we've had months of market gains and some pleasant economic news to go along with it. Just last week, we learned that the U.S. manufacturing economy expanded for the first time in 18 months. U.S. auto sales jumped to their highest monthly level in more than a year, pushing sales from Ford (NYSE: F), Toyota (NYSE: TM), and Honda (NYSE: HMC) higher. Although sales were bolstered by the government's "Cash for Clunkers" program, automakers expect conditions to continue improving. So with all this positive news, the question remains, is the recession over?
I put that question to a panel of experts:
- David Kelly, chief market strategist at JPMorgan Funds
- Bob Doll, vice chairman and global chief investment officer of equities at BlackRock (NYSE: BLK)
- John Linehan, co-director of T. Rowe Price's (Nasdaq: TROW) U.S. equity division and portfolio manager of the T. Rowe Price Value Fund (TRVLX)
- Uri Landesman, head of global growth at ING Investment Management (NYSE: ING)
After four straight quarters of economic contraction, everyone on the panel believes the worst is behind us -- and some even believe the recession is, in fact, over. What follows is an edited version of what they had to say:
Looking at the underlying fundamentals, do you think the recession is over?
David Kelly: Yes I do. Though, let me be clear [about] what economists mean by a recession. A recession is measured as the period of time between the best month and the worst month. Although it still feels lousy, and although the economy still has problems -- I think unemployment is still fundamentally rising -- I think we are past the worst month. From that perspective, I think the recession is over, and the recovery has begun.
The National Bureau of Economic Research will eventually make the determination. Technically the way they date recessions is they look at five indicators: retail and wholesale sales, industrial production, employment, income, and a broad measure of overall output in the overall economy.
I think that in the month of July, we probably saw income turn positive. We know we've seen industrial production turn positive, and probably overall output in the economy turned positive. So I think we may have seen three out of the five numbers turn positive. So we're not in full-fledged recovery yet, but I think they will probably say that the recession ended in either June or July of this year.
Bob Doll: I think it's ending as we speak. My guess is that the National Bureau of Economic Research, which is the final arbiter on these things, will look back after the turn of the year and will point to some month -- probably here in the third quarter -- and say that was the end of the recession. Whether it's August or September, who knows, but it's happening.
John Linehan: Recession is a technical term. I don't think things are getting worse. I think things are starting to get better. Are they getting better to the point where we're actually seeing an increase in growth? It feels that way, but I don't know for sure. It's very clear that things have stabilized. It's clear that you're starting to see pockets of optimism and growth. If that continues, we're clearly going to see an improving economy.
Uri Landesman: I do think the recession is over. Now, that doesn't mean we're only going to have great news on the economic front. But I believe the economy is going to expand (albeit) at a reasonably gradual rate until lending increases. I think the first thing that needs to happen is that lending activity has to pick up between businesses and banks. That inevitably will lead to job creation, which I think will obviously lead to higher employment …
While I think enterprise spending, not retail spending, is going to lead the economy up, they're related to each other. As enterprises start creating jobs that will make the consumer feel a lot better and more willing to spend and not save … [Higher employment] in turn should drive retail sales, which would be the second leg of the recovery.
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