A recent internet poll posted on the Money magazine web site asked When will the U.S. economy improve?

Fourteen percent of respondents (most likely bankruptcy lawyers and auto repossession agents) cheerfully said the economy has already recovered.

width=200But the answer from 80 percent of those responding was that the economy will improve no sooner than next year, or even later. There were 77,255 of these dour pessimists, out of 96,569 responding as of mid-August.

The smallest group (a mere 7 percent) chose the answer that the economy would improve in the next few months.

Although the view that the economy will improve very soon is a minority opinion among the general public, it is the dominant view (by far) held by professional economists.

According to a poll of leading corporate economists in the August edition of Blue Chip Economic Indicators, 87 percent project an end to the recession within the current quarter.

Can the economists be right and the 77,255 pessimists polled all be wrong about when we will see the end of the recession?

The answer of course is yes and no, depending on what is meant by the end of recession and what components of the economy will actually show improvement.

Clouds over consumers

There are several clouds hanging over consumers these days, and none are expected to clear very quickly. Consumer confidence took a tumble in July for the second consecutive month of decline (the next release is August 25). Headlines about foreclosures and falling home prices don't brighten anybody's mood, nor do rising unemployment rates and continuing job losses.

Labor market conditions are undoubtedly among the most powerful influences on consumer perception of economic health, and if past recessions are any guide, we won't see improvement for many months.

The recession that began in July 1990 officially ended in March 1991. Unemployment peaked three months later and did not drop below 7.0 percent until the following year. The recession of 2001 ended November 2001, but unemployment rates rose for the next 18 months.

In formulating their projections for the end of the current downturn, the economists are emphasizing the national output or Gross Domestic Product (GDP). The outlook now is that the inflation-adjusted GDP figures should show as much as 2 percent gain in the current quarter, after four consecutive quarters of decline (see table at Economy@W. P. Carey).

What will drive this reversal of fortune? Surprisingly, it doesn't take all that much in an economy that has bottomed out. If key components such as housing just stop declining, then GDP can turn positive as producers start to rebuild inventories.

Inventory slashing has been particularly fierce in recent months, so much so that inventories are rapidly coming into balance with sales and actually will soon start adding to growth.

Moreover, it is often overlooked that the reported GDP growth figure is an annualized increase. That is, to show growth of one percent in the reported GDP, the output of the economy actually only has to increase by .25 percent, and then the increase is multiplied by four to annualize the figure.

Manufacturing rebound

The Cash for Clunkers program seems to have started the ball rolling for manufacturing. Industrial production was up 0.5 percent in July while manufacturing output, paced by autos, grew 1 percent, the first big gain since the end of 2006. The Institute for Supply Management (ISM) manufacturing index rose in July for the seventh consecutive month.

The available indicators are suggesting that if GDP does post positive performance in the third quarter, it will not be because consumers are back in the game. Rather, this resumption of growth will be led by inventory rebuilding, a tentative advance in business spending, a bottoming out of housing and, most notably, a resumption of manufacturing activity.

For consumers (including the 77,255 pessimists who don't expect improvement this year), their world will still be troubled by tight credit standards, rising unemployment, more (but diminishing) job losses, and weak confidence in the future.

As the recovery unfolds, it will be without strong support from consumer spending, leading to modest GDP growth at best through 2010. Without the consumer in the game, there will be continuing threats of a double dip recession, and a nagging concern that maybe the 77,255 pessimists were justifiably gloomy.