In yesterday’s New York Times, staff writer Gretchen Morgenson wrote an article entitled “Are We Finally Coming Out of the Woods, Economically Speaking?” Morgneson was encouraged by two recent economic indicators. October’s employment figures rose more than economists had expected and the stock market rose to levels last reached just before the fall 2008 financial crisis. Impressed with the validity of his forecasts over the past five years, she consulted Ian Shepherdson, chief U.S. economist at High Frequency Economics.
In 2005 Shepherdson predicted a real estate crash and a subsequent recession. He was early on that prediction, Morgenson said, “But he was fundamentally right back then and has been consistently on target since. So, I am happy to report that he sees the beginnings of a turn in the economy that could translate to a rise in the gross domestic product growth and an improving employment picture in the second half of 2011.
“The basis for his view is a shift, albeit nascent, in commerical and industrial bank lending. The trend is real, he said, and as it gains steam, small businesses should receive more credit, for which they have been starved. And because these companies employ half of the nation’s work force, this credit expansion will translate into real employment gains. Sheperpherdson said, ‘I reckon in the last cycle they accounted for two-thirds of all new job creation. Not only are they big, they are better job-creation engines than big companies, which are more inclined to do their new hiring offshore.’
“Obviously, a growth in lending to small businesses is not yet being felt across the board, Mr. Shepherdson said. But as the credit expansion trickles down to these companies, the gap will start to close and employment will begin to ramp upward.
“‘My overwhelming condition for things to get better in the small-business sector is credit, so the positive data are a hugely exciting development,’ he said. ‘I don’t think we will see all these gaps close by December, but over the next 12 months I think we will see a transition out of a sluggish 2 percent economy to a real, properly growing recovery. And the second half of 2011 may be the true turning point for unemployment.'”
We can only hope Shepherdson is on target once again.