When Will the Recession End?

The U.S. Department of Commerce estimated that national output fell 6.2% during the last four months of 2008, a steeper decline than many expected. The preliminary estimate released earlier indicated a decline of 3.8%.

The decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment that were partly offset by a positive contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

Most of the major components contributed to the much larger decrease in real GDP in the fourth quarter than in the third. The largest contributors were a downturn in exports and a much larger decrease in equipment and software. The most notable offset was a much larger decrease in imports.

When will it end? The New York Times asked 11 forecasters and economists to come up with their predictions.

The answer? No time soon, but several believed we would be out of this by 2010.

I think James Grant’s reply is fairly insightful:

Today’s low prices, painful though they may be, are the market’s own shovel-ready stimulus. Before you know it, the stock market, and the residential real-estate market, too, will be on their way back up again — just don’t ask when.

The Cato Insitute’s William Poole is also worth reading. He is highly critical of federal intervention (and bailouts), but also notes the following:

The self-correcting nature of markets will ultimately prevail. We should not underestimate the power of monetary policy; with the sharp increase in the nation’s money stock starting in September, monetary policy is now extraordinarily expansionary. I believe, though without great confidence, that the recession will end in the second half of this year.

Author and financial crisis historian James Cooper takes a longer view, but one that recognizes the financial markets will take a while to sort out even after the recession is technically over:

TODAY’S financial crisis is the biggest in recent history, when measured by its speed, the scale of its capital losses or its global reach. Yet viewed from another perspective the crisis is surprisingly ordinary, following the same path as dozens of previous bubbles.