Speaking in New England late last week Moody’s senior economist, Mark Zandi, predicted a fourth quarter recovery in the economy. Zandi says:
“The economy won’t come roaring back. The sectors that generally lead us out of a recession — housing and vehicles — are flat on their back and won’t revive rapidly. The economy will kick into high gear in 2011 and 2012.
Prior to the 2001 recession, businesses were panicked about finding skilled workers. In the current recession I think many businesses were worried about their own survival and went through very draconian cost-cutting. Once they feel the coast is clear, I think they’ll be back again hiring.”
On housing he said:
“I am expecting the end of the [housing] price decline to occur later this year or early in 2010. But that is an assumption. We need to see the loan modification program work. If it doesn’t work, foreclosures will go up and that will put pressure on consumers because of loss of wealth.”
Zandi is generally a pretty level headed economist. Well worth listening. But I think even Zandi might be surprised by how slow the recovery is (assuming one occurs in the next year). We haven’t seen a consumer driven recession of this magnitude in decades. It’s unlikely that the economy can make a real base until the consumer balance sheet is clean again. Read more on the painful process of deleveraging here.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.