Recession is “very likely over,” says US Federal Reserve chairman

The chairman of the US Federal Reserve Board chairman,  Ben Bernanke, said publicly last Tuesday the worst recession since the 1930s is ”very likely over.”

But while the news was positive, Bernanke emphasised in his speech on the economy last week in Washington that people shouldn’t be looking for a dramatic recovery. It will be more of a slow-moving improvement, where the economy inches toward expansion, but without a sudden return to economic boom anytime soon.

Bernanke’s point about the end of the recession was highlighted by a 2.7 per cent jump in retail sales for the month of August, according to the US Commerce Department. This is an important indicator, as the key to reviving the economy again is to get consumers spending, and that appears to be happening. Not just for auto sales, which got a big boost in August from the US government’s Cash for Clunkers programme, but also for other key categories, like food and clothing purchases, department store retail, and entertainment and restaurant spending. All these experienced an increase for the month, after having been mainly down for well over a year.

One reason for the pick-up in consumer spending is that people are feeling more confident about the direction of the economy in the months ahead. They see the stock market up, so their retirement funds are bouncing back.

They also see home values stabilising or growing in most areas, so their equity is beginning to increase again.

The one big negative – especially a downer for the housing market – is the unemployment rate, which Mr Bernanke said won’t be coming down fast, even with the end of the recession.  Nonetheless, the vast majority of Americans who do have jobs have seen their real wages rise this year, up five per cent – the largest annual gain in 50 years.

Meanwhile, the US mortgage market continues to be exceptionally positive for housing sales and values: 30-year fixed rates averaged just above five per cent last week, according to the Mortgage Bankers Association, and 15-year loans averaged 4.4 per cent.