Wednesday August 19, 2009

In a follow up to my comments earlier this week regarding consumer confidence, the debate is well underway as to the the shape of the pending recovery.  Economists use the letters, V,U and W to denote the speed and sustainability of growth after a recession.  A "V" shaped recovery denotes a sharp rebound with strong growth; a "U" shaped recovery is slower with sluggish growth and a "W" shaped recovery is akin to the dead cat bounce in a bear market in equities, where growth resumes only to falter and slump.

The shape of the recovery is important because a pick-up in employment growth, an increase in tax revenue for public services and gains in capital markets are all dependent on its slope and speed.  Unfortunately there is very little consensus right now in the economic community concerning what letter of the alphabet we are likely to see.  Arguments for any of the three scenarios can be found in parallels with previous contractions.

Clues will be found in the following areas over the next six months -

• Business production and output
• Credit availability and bank failures
• Housing starts, sales and pricing, and
• Consumer confidence

Stay tuned.

 

» Posted by John M. Foehl, Jr. at 9:04 AM