Recovery maybe - but hold the champagne
Economists say the economy is at a turning point, but official word and relief from economic pain are still many months away.
NEW YORK (CNNMoney.com) -- There is a growing belief that the worst economic downturn since the Great Depression is over.
But don't expect there to be an official declaration or the turning point any time soon. And most average Americans won't feel like things are significantly better in the near term.
The closest to an official pronouncement of the end of the recession came in the statement from the Federal Reserve Wednesday that it sees the economy as "leveling out" following its long decline. But the Fed still cautioned that economic activity would remain weak in the near term.
The Wall Street Journal's survey of top economists, published Wednesday, found that 57% believe the recession is already over, while another 23% believe that the economy will turn in the next month or two. Most economists now expect growth in the gross domestic product, the broad measure of the nation's economic activity, of about 3% or more in the period of July through September.
But the National Bureau of Economic Research, the body of economists charged with officially setting the start and the end of each recession, won't pronounce a start of the recovery until next year at the earliest.
Its statement that the 2001 recession ended in November of that year didn't come until 18 months later. Its pronouncement that the current recession had started in December 2007 didn't come until 12 months after the start. So by the time the NBER says anything about a recovery, it will already be well established.
Jim Poterba, president and CEO of the NBER, said it is more important for his body to look at all final economic readings, including the revisions, before it declares a turning point for the economy, rather than try to make a quick announcement. That way, he said, economists who look back at how the economy responded to different policy initiatives by the Federal Reserve or Congress, as well as external economic events, will have more complete information upon which to base their decision.
"We are not trying tell people in real time exactly what is happening," he said.
The NBER also looks at a number of different economic readings, according to Poterba, including employment, industrial production, income and sales, which can send contradictory signals that take some time to sort out.
"It is not formulaic. It is an attempt to pull together information from a variety of different sources," he said.
And the NBER also waits to make sure that the economy doesn't have a false upturn before turning down once again. A recovery, like a recession, needs to be sustained in order to be recognized by economists. The current recession has already seen one brief spike of economic growth, in the second quarter of 2008.
But that doesn't stop other economists who are expected to provide information to their clients and businesses from trying to make the call in nearly real time.
Lakshman Achuthan, managing director of the Economic Cycle Research Institute, which forecast in April the recession would end this summer, believes there is now a growing consensus about that turnaround.
"But if you've waited until today to consider the idea that the recession is ending this summer, you're already behind the curve," he said.
Achuthan said it is very difficult to forecast a turn in the economy in real time, and that to try to make the distinction now between whether the economy turned higher in June or July is "a false sense of precision."
It's also important to remember that the start of a recovery is not a sign of economic strength. Instead it's a determination that economic activity has hit bottom, and essentially has no where to go but up.
Job losses can continue and unemployment is likely to continue to rise at least through the early months of a recovery. The economic pain caused by a recession can take years to recover from.
Economists say that the other reason that the start of the recovery is not a cause for celebration is it's not yet clear how strong this recovery will be. And that makes a lot of difference in the quality of life of ordinary Americans.
"The rate of recovery is a very important factor in how the economy will feel as it moves off the low point. That gets less attention than it should in a lot of discussions about the end of a recession," said Poterba.
And even some of the economists who believe the recovery has already started say this one will be more painful than a lot of recoveries in the past.
"Things are less bad than they were previously, but it's not going to translate into a meaningful improvement in the quality of life," said Mark Vitner, senior economist with Wells Fargo. He said continued downward pressure on incomes, high household debt levels and limited availability of credit will keep economic growth and hiring in check, even as things turn higher.
"This is definitely a recovery only a statistician can love," he added. "Everyone else is part of the statistics, and it's not as much fun being a statistic."