Let me explain.
The would-be money quote came when Bernanke offered an unusually candid admission that we may dip into recession — if we’re not already there.
“A recession is possible,” Bernanke said. “We’re slightly growing at the moment, but we think there’s a chance that for the first half as a whole there might be a slight contraction.”
Bernanke demurred from making an official recession call in such a public forum, leaving that job to a committee at the National Bureau of Economic Research, which is charged with doing such things.
The bureau’s Business Cycle Dating Committee is notoriously slow to make recession calls. But the bureau’s leader on Monday sounded like he’s made up his mind.
“I think the professional forecasters have been a little slow to come to the recognition that we’re in a recession,” Martin Feldstein, president of the bureau and a member of the business cycle committee, told CNBC.
Feldstein said he thought the economy started “sliding into recession” in December or January.
Notably, the financial markets barely rippled after such comments, actually moving higher in recent days.
The market’s reaction — or rather, the lack of one — prompted me to wonder whether to declare the recession over.
My thinking was rather simple.
If it has become so obvious that even the Fed chairman is moved to utter the R-word in public, it must nearly be over. After all, the last two recessions were so brief — eight months each — that they were almost over before they became common knowledge.
Financial markets also tend to discount for future events — and Wall Street has shown a few signs of life in the wake of the Fed-orchestrated JPMorgan Chase takeover of stumbling Bear Stearns, a series of short-term interest rate cuts and other actions to pump liquidity into the markets.
No one doubts that there will be more sad news stemming from the credit crunch rooted in the subprime mortgage market meltdown. The current debate, however, is whether the marketplace has adequately discounted prices to account for those disappointments and clear the way for brighter days.
After hitting a closing peak of 1562.47 on Oct. 10, the Standard & Poor’s 500-stock index fell 18.5 percent to a closing low of 1273.37 on March 10. Since then, the S&P 500 has bounced more than 8 percent higher.
Unfortunately, the housing market, which lies at the heart of our economic problems, is less nimble in making pricing adjustments.
The average nationwide price of an existing home sold in February was $241,900, down 7 percent from a year earlier, according to the National Association of Realtors. The average price nationwide has declined in seven of the last eight months, and the housing market continues to grope for a solid bottom.
As stock and housing values fall, businesses and households are cutting back. The unemployment rate has jumped from 4.4 percent in March 2007 to 5.1 percent last month, and consumer confidence is at its lowest level in 16 years.
It’s all reaching critical mass at the household level. One of the most telling numbers I’ve seen recently comes courtesy of Merrill Lynch. Merrill noted that the amount spent by consumers on such basics as food, energy and medical care had reached 36 percent of disposable income by the end of 2007 — the highest level since such records began to be tracked in 1960.
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