Martin Feldstein Says Not So Fast

By way of Economist's View, Martin Feldstein has posted an article in which he argues that while the decline has certainly slowed it is far too early to claim a recovery is underway or even close, suggesting that

. . . my reading of the evidence does not agree with that of those who claim that the economy is actually improving, and that a sustained cyclical recovery is likely to begin within the ext few months. Although the stimulus package of tax cuts and increased government outlays enacted earlier this year will give a temporary boost to growth, we are unlikely to see the start of a sustained upturn until next year at the earliest.

Feldstein does expect to see a small uptick over the next few months as the effects of the stimulus package are felt, but he argues that the effect is likely to be temporary as the stimulus measures now in place are not enough to drive a sustained recovery, noting that

. . . the key thing to bear in mind is that the stimulus effect is a one-time rise in the level of activity, not an ongoing change in the rate of growth. While the one-time increase will appear in official statistics as a temporary rise in the growth rate, there is nothing to make that higher growth rate continue in the following quarters. So, by the end of the year, we will see a slightly improved level of GDP, but the rate of GDP growth is likely to return to negative territory.

So where are we? There seems to be little consensus. Markets are up, but so is unemployment, as is typical at the end of a recession. But there are still a host of problems in the financial sector. What was once the worlds largest corporation is set to enter bankruptcy protection, which will surely ripple through the economy. And on the political front, the right in the U.S. is gearing up for a zero sum war of attrition.

It remains to be seen.