Recession over?

Wall Street hit a four-month high overnight on the back of news that the group of economists that decides when recessions officially start and end – a group known as the Bureau of Economic Research’s Business Cycle Dating Committee – officially ended in June 2009, 18 months after it started.

That investors would rally on such news is a little unbelievable. Yes, there are slight signs that the US is starting to pull itself out of its big black economic hole, inlcuding improving data from the home sector, the retail sector and the manufacturing sector.

But the huge problem is that unemployment stands at about 9.6%, and according to separate forecasts from the OECD today, there is no short-term fix on jobs.

“It could be early 2013, at best, before the (unemployment) rate returns to its pre-recession level,” the report said.

While unemployment remains high, consumer confidence – and more importantly, consumer spending – is likely to be sluggish. As we’ve seen in downturns in Australia and abroad, nervous consumers don’t spend, which means nervous businesses don’t invest, which means growth becomes a very difficult prospect.

And America could face this scenario for another three years.

While the problems in the US seem a long way away for Australian entrepreneurs, this situation in America shouldn’t be forgotten.

Not only is the US an important trading partner – particularly for our larger companies, many of whom have already warned their 2011 results will be hit by the weak conditions in the US – but we will continue to feel some fallout from the US from movements in the US dollar and particularly sharemarket movements.

If Wall Street was to experience another big dip – and with a prolonged period of weakness, that is very possible – then Australian investors would suffer, potentially leading to another period of weak consumer spending.

Things are ticking along very nicely indeed Down Under, but smart entrepreneurs never take their eyes of the global view.