U.S. Recovery May Start, Then Sputter as Zarnowitz Rule Is Bent
The Zarnowitz rule may live, but not for long.
The current contraction may so far be following the economic law named for Victor Zarnowitz, the late expert on business cycles: Deep recessions are almost always followed by rapid rebounds. Consumer confidence rose by the most in more than two years in April as surging stock prices and falling mortgage rates boosted optimism. A gauge of U.S. manufacturing activity had its biggest bounce since 2005 as companies eased up on efforts to slash inventories. Even the crippled housing market has shown signs of stabilizing.
The risk is that any snapback may end up stunted by structural impediments — from heavily indebted consumers to a hobbled banking system — that continue to weigh on the economy and may prevent a sustained run of rapid expansion.
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