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S.C. economist bets recession is over but ‘road ahead looks pretty bumpy’

Recession ending but rough road ahead?

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Editor’s note: Excerpts from “The Economic Situation” report by Bruce Yandle, director of the Strom Thurmond Institute Economic Outlook Project and dean emeritus of the College of Business & Behavioral Science at Clemson University.

CLEMSON, S.C. - The Bureau of Labor Statistics’ July Employment Situation report indicated that the nation is shedding employment at a slower rate, and that may well be one of many signs that the 2007-09 recession has ended.

I am betting that when the experts set this recession’s closing date they will choose either August or September of 2009. This will make this recession the longest, but not the most painful, since 1948. But remember, the end of a recession means things will not get any worse. Getting better depends on recovery, and the road ahead looks pretty bumpy.

But there is more to the good news. Management’s July manufacturing economy index is nudging 50, the neutral value that when passed will indicate recovery is on hand.

Even the much belabored housing market much like Lazareth, is rattling forth from the grave.

But remember, the rising factory and housing action is taking place at a very low level of activity.

Improved abor market conditions are seen in the nation’s July unemployment rate, which fell ever so slightly to 9.4% from June’s 9.5%. The difference is hardly significant in a statistical sense, but the fact that the rate held is one more indicator that the recession is breathing its last breath. The unemployment rate is predicted to continue its upward path for a few more months. When real GDP growth is less than 2.5%, the number of people entering the labor force each month exceeds the number of job opportunities that become available. It is only after economic recovery takes hold that the unemployment rate will decline. Look for this in the first half of 2010.

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Is the auto stimulus a good idea? Relative to what? If money is to be printed and dropped on the economy to reduce unemployment, targeting auto sales may be better than just pushing the money to state capitals. That said, the rationale is fundamentally flawed. The clunker program calls for productive captial—clunkers—to be destroyed and replaced with new vehicles. Producing wealth that can be saved and transferred is one of life’s most difficult challenges. Few societies are able to do it.

Government programs that inspire destruction of useable machines send a powerfully destructive message, even in the guise of improving overall fuel efficiency.

As Bastiat pointed out in 1850 in his perceptive “Parable of the Broken Window,” there are gains when a hoodlum throws a brick through the butcher’s plate glass window. After all, someone will sell and install a new window. But there is a loss that must be considered.

Otherwise, we would give merit badges to scouts who learn to throw bricks more accurately through windows. And we would celebrate politicians who pay us to destroy workable trucks and automobiles, and plow under every other row of cotton, and slaughter pigs to keep them off the market, and convert grapes to raisins to support the higher wine prices, and to destroy energy while producing less energetic ethanol.

Indeed, we do, as sad as it may seem.

(Excerpts reprinted with permission.)

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