New economic reports in the coming weeks will tell us that the increase in economic activity in the United States during the summer was mostly a seasonal event. Home prices, for example, increased ever so slightly, but will have to fall more wherever there is more housing being built on top of the substantial oversupply that already exists. Already, the unemployment rate, which held steady as millions of unemployed workers took summer vacations, has resumed its increase. And consumer sentiment has fallen sharply as the sunny days of summer and the excitement of the Clunkers program fade from memory.
I hope people will not be unduly discouraged by indicators that seem to say the recession is still holding on. The fact that the economy could support a seasonal bounce shows that things are not so terrible. The economy, even as it retrenches and reshapes, still has considerable strength. It is nearly holding its own.
Another reason for hope is that the recession does appear to be over or ending in much of the world. Economic growth elsewhere will eventually help the U.S. economy, creating more demand for U.S. exports. If the coming collapses in commercial real estate and credit cards and the subsequent bank failures do not further frighten the U.S. economy, the U.S. recession will surely be declared over with next summer’s bounce.