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Is This Recession Over? Yes, No, Maybe.

By Thursday Review staff | published June 17, 2014 |

It’s the recession that won’t end, not quite.

Consumer prices climbed in May, jumping up enough to be the biggest increase in about one year. Food prices were the main culprit, rising 0.4 percent, the heftiest food increase since summer 2011.

The increase in food prices was predicted by many economists who said that a particularly harsh, long winter would have a wide impact on prices in grocery stores nationwide. The extreme winter damaged cool-weather crops.  Ice, freezing temperatures and heavy snows persisted well into early March, further delaying the start of spring farming.

Just last month analysts were saying that inflation had tapered off, and was no longer a major factor in consumer spending habits on most items. But that was then, and this is now. Economists are divided on whether to characterize the current market as being in full recovery or being still stuck in the last stages of recession.

Not all economists agree that inflation is a sign of recession. The Fed was concerned only months ago about inflation slowing too much, a sign that growth is sluggish. But others counter that too much inflation can send spending down and slam the brakes on further recovery.

The mixed signals have affected everything from energy prices—which dropped, but are now rising again over fears of disruptions in the Middle East—to retail sectors. J.C. Penney, Kohl’s, Home Depot and Target have all seen sales slump measurably over the last six months, as consumers look to stretch their money further and shop only when deep discounts are available.

Winter affected real estate nationwide, but a housing boom which began early last year has stalled, and homes sales are general flat—though there are exceptions in some markets where homes sales have been brisk within the last few months.

Winter also greatly impacted new home construction—as well as real estate across the board—but there was a general feeling that demand would rise again quickly once warmer weather arrived in late March and early April.

Now, adding to the mixed indicators, the U.S. Commerce Department says that new home construction fell again in May—dropping in all markets except the Deep South. Averaged over 12 months, new home starts have risen about nine percent, but the majority of new construction has been on large apartment buildings and smaller multi-unit dwellings. Some analysts say this is a sign that some of the most important recessionary factors are still present in the market.

New home construction is seen as one of the most important signs of economic growth in the U.S. April saw a slight uptick as moderate weather finally arrived, but the Commerce Department says that the mini-boom lasted only a few weeks. Builders started 6.6 percent fewer new homes in May than in April, and preliminary figures suggest June will be slow as well. The Commerce Department uses a variety of numbers to calculate its forecasts, including construction permits for single family homes. Some analysts say that the slowdown could be offset by homebuyers looking instead to find bargains and values in existing homes—a sign that potential buyers are balking at costlier new homes. The Commerce Department says that the median price for a newly-built home is $275,000, a roughly 10% increase in the last year.

Sales of existing homes have slowed, in large part because lenders are being pickier and borrowing costs have risen. Even in markets where buyers and sellers agree on a price, banks and lenders are conservative—on both new and existing homes. Fixed-rate mortgages now average 4.2%, up from 3.93% one year ago.

Economists and market analysts say that the unevenness of the recovery is embedded in consumer confidence—or a lack thereof—and especially the outlook for jobs and earnings. Still, pent-up consumer desire to spend find its way into the market anyway. Even though the housing mini-boom is now in a mini-bust, sales of new cars rose across the board for all automakers. Even General Motors, beset by bad press and a daily thread of conversation about recalls and safety problems, saw sales of its cars increase in April and May.


Related Thursday Review articles:

Despite Safety Issues, GM Sales Are Up; R. Alan Clanton; Thursday Review; June 11, 2014.

Housing: Rebound or Recession?; Thursday Review staff; May 27, 2014.

Kohl’s Facing Profit Decline; Thursday Review staff; May 28, 2014.