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Economic Review

8/03/2009

With continued Equity exuberance the recession has to be over, doesn’t it?

You’ve all seen the almost unbelievable gains in US stocks over the past few weeks and so far the only fundamental news has been some slightly better than expected housing data and oh yes, a rash of hype.  Without going into what’s really driving stocks higher (you may actually find it disturbing to know), let’s focus on this verbal assault on our senses by the media that the recession is over.  More specifically let’s take a look at a few major factors that are implying that we’re not coming out of the recession. 

The employment picture as been the focal point of our economic turmoil, as well it should, given that joblessness is about to reach double digits and when considering the more traditional and accurate method of measuring unemployment it’s well above 10% already. The spinners supporting the “recession is over argument” state that employment is a lagging indicator and that hiring only transpires after economic growth rebounds.  But that implies that unemployment has to at least bottom or should we say reach a peak and stabilize before a recession is over.  Unfortunately our employment situation is one where joblessness is still on the rise and has not stabilized just yet.  This implies the recession is not over. 

Additionally, unemployment benefits for those who have been unemployed for some time are winding down.  Severance packages and unemployment benefits are ending for a sizable percentage of the unemployed population.  This renders a very bleak scenario for future economic growth.

IS the recession over?  For some reason, next quarter’s GDP may some how come in on the positive side (and it would be quite odd), however the real underlying economic scenario depicts continued weakness on a number of fronts.  Let’s take a look at this week’s employment report and one or two reports over the following months to see what’s really going on.  And as far as why Stocks keep screaming higher?....don’t look at fundamentals, just ask one or two major speculative investment banks out there (wait a minute…are they still called investment banks?)

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