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Recession Likely Has Run Its Course, Experts Say

Many economists agree the recession probably ended, but some question how strong the recovery will be.
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) -- After watching the economy plummet, millions of workers go on unemployment and a sea of taxpayer dollars go to stimulus and bailouts, many want to know: Is the recession finally over?

The unofficial answer, according to most economists, is some soft, qualified variation of "yes."

Most economists believe the recession hit rock bottom sometime in the middle of last year. The recent economic data scorecard backs that up. On Friday, the government reported that

first-quarter GDP rose at 3.2% annual pace

, meaning the economy rang up a third straight quarter of growth. That feat is all the more impressive considering that in 2009, GDP had its worst year since President Harry Truman was in office.

Consumer confidence soared to its best level this month since September 2008, the same month Lehman Brothers declared bankruptcy.

Also this month, the

Dow Jones Industrial Average

recaptured its fall 2008 levels and

topped the 11,000 mark once again. Manufacturing activity expanded for the eighth straight month in March, according to the Institute for Supply Management, while the government said

March retail sales rose for the third straight month.

New-home sales in March soared to their best showing since 1963, while statistics and mostly strong earnings reports from


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, among many others, are showing a pickup in business spending, demand growth and productivity gains.

Dodgers' Woes Highlight Downside of Debt (Forbes)

Then, there's the labor market. No one will suggest the unemployment picture isn't gloomy, but it is improving. After cutting jobs at a breakneck pace for much of 2008 and 2009, with employers shedding over 700,000 jobs a month at one point, nonfarm payrolls added 162,000 jobs in March.

"Yes. I think it's been over for five months now," said John Canally, economist at LPL Financial, about the recession. "The question is whether they're going to date it being over. That's, of course, up to the National Bureau of Economic Research."

As Canally suggested, the NBER's business cycle dating committee is the group charged with making semiofficial pronouncements on the starts and stops of booms and busts. But the committee shied away from answering the question following its most recent meeting.

In a mid-April statement, the group said most economic indicators are looking brighter. But members demurred on calling the recession's bottom, saying it would be premature, because many of those figures were preliminary and could be revised.

Committee member Jeffrey Frankel, a Harvard-based economist and member of the Council of Economic Advisers under President Clinton, sounded more upbeat in an interview with


. He also called the recession's end in a personal blog post ahead of the meeting.

"There's a very high probability that there was a trough in the middle of 2009, and all of the statistics suggest that things have gotten better since then," said Frankel, who made clear he was speaking only for himself and not for the rest of the committee members. Still, he is an economist and, as such, is prone to qualifiers. "But there are some 'buts.' "

And it's those "buts," or potential headwinds that could crimp growth that are creating the hesitancy. Frankel specifically cited ebbing government stimulus without a pickup in the private sector or hypothetical tremors like ripples from Greece's debt woes as curbs to the improving economy. Frankel believes the likelihood of a double dip is remote, but it's an uncertain world, and there are plenty of unknowns.

The severity of the economy's steep downturn means any pullback at this point could be interpreted as a continuation of the recession. Under that logic, it's understood why the NEBR's more official declarations on cycles typically trail broader sentiment.

Even the lack of harmony in how we use the term "recession" makes calling its end confusing and reveals the art behind the science of economics. Some might think of a recession's hard-and-fast definition -- "two straight quarters of negative GDP" -- and think an expanding quarter or two could define an end.

For others, a recession can only end when everything


normal again.

But NBER defines a recession more generally as a period of significant economic decline between a peak and bottom in an economic cycle. Under that definition, it's entirely possible a recession could also reflect a brief period of expansion and vice versa. Technically, an end is the bottom.

"Even if we were prepared to declare that the trough was in June or in the second or third quarter of last year, clearly what the word 'recession' means is that things are getting worse," Frankel said. "The trough means things are at the bottom. Recovery means you're on your way up. But you can phrase that in a very optimistic way and say 'The recession is over, now we're in recovery.' It sounds like you're saying 'happy days are here again.' But you can just as easily describe it as, 'We're at rock bottom and things have never been this bad.' You could describe the identical circumstance that way."

Calling a recession's end and how you describe it could just as easily be seen as a Rorschach test of your psyche, as much as an exercise in the analytical.

That may also help explain the disconnect between Wall Street and Main Street. While Wall Street is crowing about the economic rebound, normal folks are still struggling on the other side of the "V" under the weight of demoralizing unemployment numbers and struggling home prices, among other things. To Wall Street, these are the so-called "lagging" indicators. But for many on Main Street, these are their


indicators; the very economic barometers closest to their daily lives.

"I don't blame them for saying quite accurately the recession is over, but things are still very bad," Frankel added. "Those statements aren't actually inconsistent."

With most feeling the recession probably came to an end, or at least the worst of the economic doldrums are over, economists are more plagued with the question of 2010 and beyond: How strong or how durable will the recovery be?

"I can say that we're getting to the point where all parts of the economy should be feeling like we're back in recovery mode and pulling out of the recession," said Robert Dye, senior economist at PNC Financial. "Now, that said, what kind of a recovery is it? Well we'd have to say, so far, this has been a government-aided recovery. Huge government tailwind coming from fiscal stimulus, coming from various programs that the

Federal Reserve

has put in place and now unwinding. And we have not yet made the transition to a self-sustaining economic recovery."

Few expect a contraction, but many expect economic growth to slow in the second half of the year as the enormous amount of government aid fueling the current boomlet begins to ebb. Look hard enough and one can easily find cracks in the current economic foundation, too. The impressive jump in fourth-quarter GDP, for instance, was fueled primarily by firms putting a stop to the alarming rate of slashing inventories. So most hope first-quarter estimates reflect a broad-based climb, led by more robust consumer spending.

The jump in the March jobs report, while welcome, was still aided by a rise in confidence-busting temporary and Census hiring. Sustained, moderate-to-robust private-sector job-creation, said Dye, is what's needed to power the aforementioned self-sustaining recovery.

Meanwhile, commercial real estate and construction activity is lagging, according to the

Federal Reserve's

most recent beige book, while loan demand remained weak alongside tighter credit. The recent uptick in new-home sales came just before the expiration of another type of stimulus program: the home buyer's tax credit. If fears about sovereign default in the eurozone actually become reality, you can expect U.S. exports to the region to drop and GDP to suffer.

Keith Hembre, chief economist at First American Funds, said reliable indicators show a double dip is off the table. Still, as the flood of government stimulus tapers off, the real test of this recovery will arrive in the coming months.

"I would characterize the foundation on which we've built our growth as being somewhat flimsy," Hembre said. "It's very hard to argue that the economy isn't growing and in recovery. It's a matter of how solid the foundation underneath it is and how strong and how durable the recovery will be over the next 12 months. To me, those are the key questions."

"If you take a look at production, sales and employment, it looks as though physically the bottom of the cycle has already been turned in. The one fly in the ointment is real government income excluding government transfers," said David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates.

But after rattling off and dismissing various tentpoles for growth in past economic cycles, Rosenberg was left wondering what's going to be the next linchpin that drives growth in the current cycle.

"We're talking about a recovery that was premised on bailouts, a

projected $1.5 trillion deficit, 0% interest rates and a tripling of the Fed balance sheet. We better darn well have a recovery, because if we didn't, that'd really be frightening," he said. "But this is not like a 1982-style of recovery that was really organic in nature. This is really artificial, in the sense that it's been totally put together by all the king's horses and all the king's men. And in a deleveraging cycle, it's very difficult to put Humpty back together again, at least that quickly."

-- Written by Sung Moss in New York