http://www.cnbc.com/id/30111906
By: Albert Bozzo, Senior Features Editor | 09 Apr 2009 | 11:55 AM ET You've heard all the gloom and doom about this recession. Now here's some good news: the economic recovery could happen much sooner—and be much stronger—than anyone thought possible. Suddenly, a small but growing group of private-sector economists is disputing the idea that the recession will drag on for months and that the rebound will be as weak as those following the the 1991 and 2001 downturns. “Too many people’s idea of recession have been formed by the last two recessions,” says Robert Brusca of Fact & Opinion Economics, referring to the 1991 and 2001 periods, which were both short and shallow. "I think that's mistaken.” “People have been talking about an L-shaped recession,” adds Michael Mussa, senior fellow at the Peterson Institute for International Economics. “The record shows you come back sharply from deep recessions” like the current one. These economists and others see a V-shaped pattern, similar to that of the recession-recovery periods of the 1970s and 1980s. And they say there is ample evidence to support it. Among the reasons for the new optimism: a significant easing of the credit crunch, improvement in consumer spending—including better auto sales—a potential bottom in housing, a less-grim jobs picture and expectations that the government's massive stimulus spending could start boosting economic growth almost immediately. That doesn’t mean anyone is saying the recession is over yet. But the end is closer than people think. Though the decline in first-quarter growth will be along the lines of the six-plus percent plunge of the fourth quarter of 2008, some economists now expect a flat or slightly negative showing in the second quarter, followed by the beginning of sustained growth in the third quarter. (That’s three months sooner than what many were forecasting several months ago.) Optimists acknowledge that existing headwinds and unforeseen events can quickly derail momentum, which may help explain why a majority of opinions--including that of the the Federal Reserve--still fall into the wait-and-see camp. “The velocity of downturn is lessening," says John J Castellani, chief economist and president of the Business Roundtable, who is more cautious than hopeful at this point. “In the initial part of the recovery, people will be very cautious about this being a double dip.” Nevertheless, those forecasting a strong recovery point first and foremost to the waning effects of the Lehman Brothers collapse last fall, which roughly coincides with the worst of the credit crunch, and triggered a massive chain reaction in payroll and production cuts. “The initial adjustment tends to be too big, then there’s some reversal of that,” says Ram Bhagavatula, managing director at the hedge fund, Combinatorics Capital. That dynamic will lead to swifter and stronger recovery in both the economy and employment that many economists are forecasting. Mussa, a former White House and International Monetary Fund economist, says that GDP will be a cumulative 6-8 percent higher six quarter than the bottom, depending on whether the recovery starts in the early or late summer. Brusca is expecting a minimum of 4.5 percent GDP growth over the first four quarters of the recovery All About The Economy Both performances compare favorably with the post-WWII average, and while they may be less than the recoveries of the 70s and 80s they are significantly more than those of the past two recessions In the 70s cycle, GDP shrank two consecutive years then posted GDP growth averaging 5 percent in 1976-1977; in the case of the 80s, the economy contracted 1.9 percent—more than economists expect for full year 2009—then grew 4.5 percent in the first year of recovery. By contrast, the 2001 recession was so brief and shallow, GDP didn’t register a contraction for the whole year. Growth in the 2002-2003 period, however, averaged just 2 percent. Similarly, in 1991, the economy shrank 0.2 percent, followed by 3-percent growth in 1992 and 1993. Economists also cite several reasons for better labor market conditions this time. They expect job losses as well as the unemployment rate to peak close to the time growth bottoms out, as was the case in the 80s and 90s, and thus not resemble the jobless recoveries of the two most recent recessions. ------------------------------------ To subscribe, send a message to: fairfieldlife-subscr...@yahoogroups.com Or go to: http://groups.yahoo.com/group/FairfieldLife/ and click 'Join This Group!'Yahoo! 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