Steady improvement in manufacturing surveys, payroll data and freight movements all indicate the U.S. economy is approaching the low point in the business cycle and should hit the bottom within the next one to four months. But that does not necessarily imply a strong and sustained expansion is about to get underway.
It is possible to be optimistic that the worst of the downturn is now over (or nearly so), while remaining cautious about prospects for strong and sustained recovery once the cyclical turning point is passed.
The slow and fitful recovery from the last recession is one reason to be careful. The National Bureau of Economic Research (NBER), the traditional arbiter of the U.S. business cycle, dates the last trough to November 2001 (eight months after the expansion peaked in March 2001 and just two months after the attack on the World Trade Centre). But signs of a strong and sustained recovery did not emerge for more than two years.
Fitful expansion in 2002 and 2003 is one reason the Fed kept interest rates so low for so long. While many commentators now see this is a significant error that contributed to subsequent bubbles in the bond and real estate markets, at the time the slow recovery caused officials, led by then-Governor Ben Bernanke, to worry more about the risk of deflation taking hold.