As we officially enter the second half of 2009, some stock taking is in order.
Has the economy hit bottom, and is the recovery about to begin?
Is it safe to get back into the stock market?
Is it time for businesses to stop cutting and start investing?
Can the government begin letting up on monetary and fiscal stimulus?
The right answer to all of these questions is probably "no."
Certainly the economy and the financial system are in much better shape than almost any of us would have predicted as the year began. At the same time, the midterm outlook is nowhere near as rosy as suggested by the consensus forecasts from Washington or the second-quarter rally on Wall Street.
Given the size of the credit bubble, the amount of overcapacity that was allowed to develop and the staggering amount of wealth that has been lost, it would be foolhardy to expect the recession to be so shallow or the recovery so robust.
Government policies, certainly, have helped to moderate the pace of the adjustment. But the process of de-leveraging balance sheets and getting spending in line with incomes is nowhere near complete. Until they are, unemployment will continue to rise, businesses will continue to fail, and the economy will alternate between growing slowly and not growing at all.
We got a hint of all of this Thursday when the government reported the loss of 467,000 more jobs, bringing the number of jobs down to where it was in March 2000. Stock markets here and around the world fell sharply on the news. And with tax revenue evaporating, some of the biggest states are being forced to curtail basic services and pay their bills with IOUs.
That's not to say there aren't some positive signs.
Monthly job losses have slowed, households have cut back on their debt, and some businesses have been able to float new issues of stocks and bonds.
Housing prices have begun to bottom out in some of the hardest-hit markets, and consumer confidence has recently improved.
Most significantly, stock prices — long viewed as a leading indicator — rebounded nearly 40 percent from their lows of early March before giving back some gains in the past two weeks.
One way to look at these developments is that they foretell a strong and sustainable recovery.
A more likely explanation, however, is that the economy has merely pulled out of a free fall, and that for the next several years it will oscillate between sluggish growth and modest decline until the necessary adjustments and rebalancing are completed.
The best hope for a sustained recovery may lie with a spurt of business investment in new technology that enhances productivity. And unlike growth driven by excess consumption and financial speculation, growth driven by investment, innovation and productivity has the added advantage of being more enduring and more widely shared.
Those qualities sound particularly attractive as we wind up a "lost decade" for the American economy — a decade in which, when measured by jobs, incomes and national wealth, we'll end up pretty much where we began.
Have a happy Fourth.