The Great Recession is over - but dont expect a boom

I am confident the economic data will show that the US recession ended in June or July, or at the latest it will be August. Of course that is an economist's technical view of an "ending". It wont feel like it has ended for many people as people will still lose jobs, companies will still go down and the good times pre-2008 will take a long time to return.

But this is almost conventional wisdom now - everyone believes that the economy could show a temporary lift but will then subside again - as over-indebted consumers struggle to boost their savings and business holds back on investment. My guess is that this pessimistic medium-to-long term outlook will fade in coming months because the upturn will be much stronger than people realise. BUT THE UPTURN WILL ONLY BE STRONG FOR A WHILE. Then it will fade again and we will be in for a new dive in confidence.

So why such a strong upturn? First, there is the inventory cycle which has been much misunderstood in my view. Companies dont have to rebuild inventory to create an economic lift, they merely have to cut inventory at a slower rate. But to cut inventory at a lower rate requires an INCREASE in production. It is only because production has been lower than sales that inventory has been running down.

Then there is the government effort. Eventually all that stimulus spending has to have some impact and it looks like the second half of the year is it. Also the cash-for-clunkers scheme is getting people spending.

So I dont rule out GDP reports of 4%, 5%, 6% or even more by Q4. This could be enough to get everybody throwing out the pessimism and talking of a V-shaped recovery. But I dont think so.

Watch final demand - which means consumer spending (including cars), housebuilding and business fixed investment spending. Unless they show meaningful improvement the recovery will slow down again. I think that will happen in 2010.