Recession May Have Ended in April: Economists

In the wake of a number of encouraging economic trends in recent weeks, some economists are beginning to suggest that the worst recession in 80 years may already have ended.

Barry Knapp, a strategist at Barclays Capital, wrote in his weekly report last Friday that April 2009 may eventually be regarded as the final month of the recession, noting that "We appear to be in the sweet spot of a recovery," according to Bloomberg News. And central bankers attending a meeting of the Bank for International Settlements in Switzerland today expressed cautious optimism that the worst may be over.

"We are, as far as growth is concerned, around the inflection point in the cycle," said European Central Bank President Jean-Claude Trichet, who chaired the meeting. "In certain cases you see already a picking up (in gross domestic product). In other cases you see that it continues to fall but at a lower pace."

Unemployment expected to linger

An end to the recession would certainly be good news for out-of-work Americans and U.S. homeowners who have been battered by a declining housing market, leaving many of them owing more on their mortgages than their homes are worth. The bad news is that a recovery is still expected to be long and slow, with unemployment not bottoming out until sometime in 2010, although housing prices may begin to perk up later this year.

For something so big that has such a calamitous impact, recessions are notoriously hard to track. Economists generally agree that the present downturn began in December 2007, although it took them a year to come to that conclusion. Identifying when the recessions ended could end up taking just as long.

Signs suggest bottom point

The recent stock market rally is perhaps the most visible sign that the economy may be turning around, but that is not considered the most reliable indicator. More encouraging to economists are the recent declines in job losses and unemployment filings, including a sharp drop in service sector layoffs in April. Service sector job losses dropped to 229,000 in April, down 40 percent from 384,000 in March. Barclay's Knapp said this suggests that many service sector employers may have overestimated the drop in demand and cut back too far on staffing.

U.S. consumer confidence rose in April, posting its biggest increase in over two years. U.S. demand for durable goods also rose slightly in the first quarter of 2009, after three straight declines. And internationally, demand for crude oil has picked up in China, suggesting increasing demand for that nation's manufactured products, while German orders for durable goods rose in March for the first time in six months.

Inflation could be next problem

If the economy is truly beginning to recover, it creates a new problem for the Federal Reserve and the world's other central banks, which have pumped massive amounts of capital into their respective national economies in an effort to stem the economic collapse. Once their economies start growing again, the challenge will be to start pulling that money back out of the system quickly enough to prevent the economy from overheating into hyperinflation, but not so fast as to nip the recovery in the bud. Managing that balancing act with the finesse it requires could turn out to be a even greater challenge than the relatively straightforward task of arresting the economic downturn through sheer force of capital.