There’s been some good news lately, including the encouraging signs in real estate. New home sales rose last month, posting the third straight monthly increase. For some, the writing is now on the wall. “Recession is over, economy is recovering,” declared John Silvia, Wells Fargo’s chief economist, in a research note, according to The New York Times.
We’re of a mind to agree with the first part of the statement, but not the second, at least not yet. As we’ve been discussing for some time, the technical conclusion of the recession is near or perhaps already here. We began considering the end back in March, when we examined the business cycle forecasting powers of the trend in initial jobless claims. In the months since, the reasoning grew stronger for anticipating that the recession’s end was approaching. News such as yesterday’s pop in new home sales only strengthens the case. But as we’ve said many times in recent months, the end of the recession this time is likely to be followed by an unusually long period of stagnation before economic growth returns in earnest.
Today’s update on durable goods offers another statistical clue for thinking so. New orders for manufactured durable goods in June fell 2.5%, the U.S. Census Bureau reports. That comes after two straight increases. As the chart below suggests, the trend looks like one that’s settling into a new period of stabilized but diminished levels.
The danger at this juncture is mistaking the long-awaited arrival of stability for the launch of a robust recovery. Indeed, even the jump in new home sales is reportedly dependent on increased speculation as opposed to the return of the consumers proper to the housing market. Make no mistake: the encouraging news from new home sales and other metrics is critical, and it suggests that the forces of recovery are bubbling. But it’s too soon to expect that the necessary factor—consumer spending—is about to re-emerge until the labor market shows more encouraging signs of life, i.e., growth. We’re still a long way from that happy day.
Meanwhile, the evidence is mounting in favor of the idea that the economy has hit bottom. Our view is that stability will last a lot longer this time around. Some will mistake that for the arrival of a new round of growth, which is premature.
Yes, a full recovery is coming, but it’s not imminent.