The ‘great recession’ is over, or is it?

The recession is over, we can all rejoice in surviving the “great recession”. But if a recession was that easy what were we all worrying about?

The truth is we are no where near the end of this recession, despite the recent surge of bright economic news in recent weeks. Whilst stock markets may have turned a corner it is well known that they rally long before the real economy does. Unemployment is still rising and that along with GDP should be the key indicator of a nations economic health.

So why the optimism?

I’d argue that people just got fed up of feeling down, and the press are reacting to this by writing positive stories that people want to read (that and stories about MP expenses!). All they need is a simple statistic showing house prices starting to rise again or consumer confidence stabilising and you have a front page headline. Few people want to read about the difficulties of extrapolating from a single month of data, which can easily be skewed by one-off events such as bank holidays or desperate price cutting measures by retailers, so the press don’t bother and just run with an optimistic story about recovery.

Property is too emotional to be a real economic indicator and the data is questionable at best. For example just how many of the properties sold in the past month had bizarre deposit paid, part interest free loans, buying fees included or were shared equity schemes. All of these result in a higher price than was really paid being recorded in the house price indexes, and with so few property transactions being completed right now they could be skewing prices significantly.

Consumer confidence is at a 11 month high and some believe that’s a sign we are on the road to recovery. But it’s still at minus 27, and came in below the consensus forecast of –25. Worse still consumer confidence is probably artificially high due to all the 50% off sales we are seeing in shops, restaurants and even now from airlines. Unfortunately all of these are unsustainable with many of the companies behind them making huge losses.

For what it’s worth I think we might be near the bottom, but we may be running along the bottom for some time before we all join an economic recovery. How long is hard to tell, but in the UK I still believe that it will be late 2011 going into early 2012 that we will see the whole economy recovering. The Olympics might be costing us a lot of money but they might just be the feel good kick start that the UK will need to spur a recovery.