Today"s Topic: Economic Outlook

It seems appropriate that as I kick off this economic blog, that I start with some big-picture comments.

April marks the month that this recession becomes the longest since the Depression of the 1930's. Questions arise as to whether this recession will turn into a depression, with unemployment rising to levels not seen since the depression.

The gloom perhaps peaked in early March when Harvard economist Robert Barro put the probability of a depression at 20%. A Wall Street Journal poll of economists put the median odds of a depression at 15%. At that time I was at 10%, somewhat surprising myself to appear as a comparative optimist. I am more bearish for 2010--2012, but that is another story.

In the last several weeks, the economy looks to be in early Spring. Consumer spending and consumer confidence are up a bit, although, form very low levels especially in the case of sentiment. Also, the Institute for Supply Management survey of purchasing managers, an early indicator of future manufacturing activity, reported on 4-1-09, that it's index increased for the third straight month. Although manufacturing is still contracting, it is doing so at a lesser rate.

Taking this into account, I sense the odds of a deflationary depression for 2009-early 2010 should be downgraded to 5%.

Unemployment is still a major problem with the rate rising from 8.1% to 8.5% for March. Many economists expect this rate to climb to 10% by early next year. This might lead to some deflation, but, more significantly should prevent an inflationary breakout any time soon.

Most economists think this recession should end later this year or early next year. With improving economic news the trough of the recession may come a bit earlier (my economics students know this means the month that the recession ends).

Subsequent postings will address the myriad problems that our economy will face due to policy decisions made to soften the effects of this recession.