Yesterday we reported the potential for an early end to the recession, but today we take a look at the other side of the coin.
Some indications have emerged that declines in output and jobs have peaked, and that the result could be a snap back that drives a recovery. But instead of a spike that has a steep rise and fall, the economy might just be stabilizing at a low level that continues the recession.
Joshua Shapiro of MFR, Inc. says that the peaks represent the end of the “panic and paralysis” phase of the crisis, but structural problems persist. “We do not believe that an end to outright panic and paralysis is destined to transition smoothly into economic recovery,” he said. “Many of the indicators that are now bouncing off their lows will before too long flatten out at levels consistent with little change in real GDP.”
The closely watched peak in the jobless claims may have materialized, but there hasn’t been a sharp drop off. The number of people filing new claims for unemployment remains at an elevated level, even as they have stopped hitting new highs. Meanwhile, inventory liquidation may have peaked, but it still remains high relative to demand.
Steven Ricchiuto of Mizuho Securities also sees the potential for a delayed recovery. “My protracted recession scenario takes into consideration not only a permanent increase in the household savings rate but also a return to more conservative bank lending,” said Ricchiuto. “The corporate sector’s attempts to boost earnings by widening operating margins has lead to the most aggressive staff reductions since the 1930’s. This dynamic is clearly working at cross purposes to the stimulus being provided by policy makers and extending out the transition from recession to recovery.”
Read more from the original source:
End to ‘Panic and Paralysis’ Not the Same Thing as Recovery
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