In case you missed it, recession now over

WASHINGTON — The most severe economic recession since the Great Depression is history, economists said Tuesday, after key early data for economic conditions in August came in much stronger than expected.

Early Tuesday, there was a report of a sharp jump in the Institute for Supply Management's factory index. The index rose above the key psychological 50 percent threshold indicating expansion for the first time since January 2008.

"The rise in the ISM manufacturing overall activity index to a level firmly above 50 and the surge in the new-orders index to the highest level since December 2004 are the clearest signs yet that the recession is over," said John Ryding, economist at RDQ Economics in New York.

Millan Mulraine, economics strategist at TD Securities, agreed.

"Given the very good historical performance of this indicator in predicting U.S. economy activity, the ISM report provided further evidence that the U.S. economic recession may have now come to an end," Mulraine said in a note to clients.

Economists are calling for an inventory-driven recovery. With goods on their shelves at low levels, businesses will have to order more to restock. This could turn into a virtuous cycle leading to more and more production.

"Even if it is slow and cautious, the change from drawdown to buildup will require additional production, and the process will take a long time to complete," said Joel Naroff, president of Naroff Economic Advisors.

Once purchasing managers are confident in stronger demand, "not only will they restock, but they should also begin to unleash pent-up hiring, capital spending, etc.," said Steve Stanley, chief economist at RBS Capital.

"In our view, if and when we get to that point, the recovery will have crossed the point of no return," Stanley said.

Companies that make textiles, paper products, computers and electronics, appliances and chemicals were among 11 industry groups that said their business was up in August. They said new orders were flowing in, production was rising and their prices were rising.

"It is a big deal," said John Silvia, chief economist at Wells Fargo. "It does suggest that manufacturing is recovering."

Bit by bit, the picture is improving for manufacturers like Allied PhotoChemical, a company in Eastern Michigan that makes environmentally attuned ink, paint and coatings.

Some 40 percent of its business disappeared last year as the economy swooned, but Allied's president, Mike Kelly, said the company had sought new customers and resisted slashing its work force.

Kelly said Allied was now running at about 65 percent capacity, compared with a low of 40 percent early this year.

"You could hear the crickets chirping," he said. "Our suppliers were calling us, giving us automatic price reductions. They were panicking. Now they're happy. They're even beginning to have some product shortages."

No official timing of the end of the downturn is expected for more than a year.

The National Bureau of Economic Research (NBER) in Cambridge, Mass., is the independent group given the responsibility for calling the end to recession. The firm is known to be very deliberate.

In the past two recessions, the NBER waited 20 months before pinpointing the trough.

That's because it's mandated to certify a turning point, not forecast one, said Ed McKelvey, a senior economist at Goldman Sachs.

For his part, McKelvey thinks the recession might have ended in June.

Questions about the durability of this recovery will remain on the radar screen for several months, according to Asha Bangalore, economist at Northern Trust in Chicago.

Because consumer demand accounts for up to 70 percent of U.S. economic activity, the economy as a whole is expected to remain weak until more jobs create more consumers who can spend.

And businesses are not expected to hire workers until they see a vibrant economy up close, analysts said. The most recent forecasts from the White House, Federal Reserve, and the Congressional Budget Office all point to a "jobless recovery."

Material from The New York Times is included in this report.