There are number of indications that the U.S. economy is showing signs
of life, but it will be weeks — if not months — before these glimmers
may assemble into a firm recovery. At that point, it would be a minimum
of an additional three months before a U.S. recovery could foster a
global recovery. This means that for the second quarter, STRATFOR is
able to take a pass on this part of our forecast. Either this quarter
will be the dark before the dawn, or it will be the dark before
midnight. Either way, it will be dark. A noticeable recovery will have
to wait until the third quarter. …

Undoubtedly, there is plenty of bad news — stock market surges tend to be the first major sign that the U.S. economy is healing, but the stock market cannot seem to find its feet, and employment remains well off ideal levels. Yet in the latter half of the first quarter, there were several developments indicating that the credit chokehold that caused the American recession to go global has begun to slacken. The availability of credit is the critical issue when evaluating this recession. Until firms and consumers can reliably borrow, economic growth cannot recover.

There are limited signs that credit is indeed loosening, and that some life is creeping back into the U.S. economy. Recent changes in accounting rules in the United States and Europe should grant banks the confidence they need to resume lending, independent of anything the governments might attempt. The Obama stimulus package — albeit far from perfect for actually stimulating the economy — is beginning to take effect. Retail sales have been surprisingly buoyant and since consumer spending comprises 70 percent of the American economy, this is a critical factor. Even more important is the fact that the stock of inventories has dropped for six consecutive months (September 2008 to February 2009, the latest month for which data is available) in the steepest decline on record. With inventories low, producers will soon be getting orders. That is how economic recoveries begin. There are even flickers of activity in the most moribund U.S. economic sector: housing.

But even if the United States economy is indeed showing signs of life, four caveats must kept in mind.

First, even a robust resumption in U.S. growth will not begin on any specific date. Instead, there will be increasingly bright glimmers of light here and there that will not be fully recognized until six months after the fact. It appears that the second quarter may be a transition quarter for the United States, with the more noticeable growth happening later in the year.

Second, the future of the American automotive industry his shifted from bleak to dark, with General Motors Corp. in particular planning for imminent bankruptcy (and GM is not the worst off of the Detroit Three). The dislocations caused by this industry’s implosion will be felt far and wide and even if they somehow do not delay the recovery, they are certain to have a material impact on how serious the average American views the recession as being.

Third, a resumption in growth in the United States historically does not mean an immediate rebound in either income or employment figures — both tend to be lagging indicators — particularly if the automotive industry breaks apart. Therefore, even if the recession does let up in the second quarter and growth turns nominally positive, that does not mean that most Americans will feel like the situation has improved. Bear in mind that it did not become conventional wisdom that the United States’ 2001 recession — which actually ended in October 2001 — had ended until 2004. Dispelling Americans’ mental gloom required more than two years of strong and sustained growth.

Fourth, while STRATFOR is certain that the U.S. economy will lead the world out of recession — the roughly $10 trillion American consumer market will demand products from, and thus generate growth in, Asia and Europe — STRATFOR is equally certain that there will be a lag of one to three quarters between a U.S. recovery and a global recovery. Most of Asia has suffered export plunges of at least 50 percent, and industrial output is down by a third the world over. Even if the Americans already have eaten through existing inventory, it will take some time for foreign suppliers to spin their industrial bases back up. The global system does not turn on a dime.

This means in the quarter ahead STRATFOR actually gets to opt out of taking a hard stance on this issue. If the United States does not recover, the world will remain mired in recession. If the United States begins to recover, the world will remain mired in recession and will begin pulling out later in the year. Either way, the second quarter is not going to be a comfortable time; it just might be slightly less uncomfortable for the Americans. (04/23/09)
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