The panic appears to be over. Now is the time to get worried. The good news last week was that, after a long decline (by some 12% in the previous 12 months), industrial output in the UK rose by 0.3% between March and April. Now, in the old days at the Financial Times, we had a rule that one should not pay too much attention to one month's figures. But the veteran economist Professor Wynne Godley - an ace Treasury forecaster in his time - made an impression on me some years ago when he declared that experience had taught him not to ignore one month's figures.
This said, it has to be emphasised that, in the world of economic statistics, an estimate of a 0.3% rise is a perilously slender base on which to build expectations of a revival. However, one is reassured to some extent by the assessment of the National Institute of Economic and Social Research (NIESR), which has an excellent record in these matters. Martin Weale, director of the NIESR, when questioned about whether the recession had ended, replied: "As far as I can tell. There has been much less downward momentum than we expected."
These things are relative. There has in fact been quite a lot of "downward momentum", as whole industries, businesses, the unemployed and those fearful of being made redundant know only too well. The NIESR reckons that the UK's gross domestic product fell at an annual rate of 6% in the three months to April, but that - given the move from down to up in industrial production (just), and better (or less bad) news from the services sector in May - the annual rate of decline between December-February and March-May was reduced to some 3.6%.
So this may be a "Godley moment" when one month's figures are really significant. Or it may not; we do not really know at this stage. On the one hand some of the so-called "forward-looking indicators" and business surveys, are looking better (or less horrendous); on the other hand, those with their fingers on the financial pulse, such as Paul Tucker, deputy governor of the Bank of England, warn "for the moment it is unclear ... whether the financial system can generate the expansion of credit that will most likely be necessary to support recovery". And Andrew Sentance, another member of the monetary policy committee, agrees, warning of "the potential constraint on lending because of the reluctance of banks to lend as they seek to rebuild financial reserves". (He resisted the temptation for a wisecrack about rebuilding their bonuses.)
Basically, what seems to have happened is that businesses ran down their stocks of goods drastically in the wake of the financial tidal wave last autumn. The destocking had to stop at some point. Similarly, the collapse of consumer confidence during the winter months had its impact on demand and raised what economists call "precautionary saving", part of that process being less inclination to get into debt, and more inclination to repay debt.
To my mind the mere thought that things may be on the turn, or at least not deteriorating further, is a testament to our policymakers at both ends of town. The Bank of England and the Treasury have not quite thrown the kitchen sink at the ailing economy, but they have not washed their hands of the problem. Indeed, they might at least be said to have thrown the wash-basin at it.
Amid all the moaning about government spending and borrowing, it was refreshing last week to hear the wonderful Professor Paul Krugman deliver this year's Lionel Robbins Memorial Lectures at the London School of Economics. I wish some of the more Neanderthal businessmen and City figures could have been there. You know the ones I mean: they complain about recession, yet also complain about the fiscal expansion needed to help us out of recession.
Krugman had fun with an economics profession that had wandered down so many blind alleys in recent decades that, in the United States between 1985 and 2000, out of 7,000 academic articles produced under the aegis of the National Bureau of Economic Research, only five mentioned fiscal policy, and the consensus was that markets were so perfect that crises such as we have recently been experiencing simply could not happen.
This recent crisis demanded a fiscal response: as it is, Krugman would have liked a much bigger one, both in the US and UK, although this does not stop him from sharing the general view that, once we can be sure the economy is on the mend, attention needs to be devoted to the sustainability of the government's finances. That time is assuredly not yet.
The debate about how to put the finances in order has already begun. The debate is already shrouded in obfuscation. My mother used to say that honesty was the best policy, which is why I never became a politician. I shall return to the economics of "cuts" another time. Meanwhile, optimists can perhaps derive some comfort from the fact that, although the Robbins Lectures were entitled "The Return of Depression Economics", the Nobel Laureate concluded by saying: "As of this evening, it looks as though it won't be Great Depression Two."
For the future, let all policymakers recall the words of the great Lord Robbins himself: "To prevent the depression, the only effective method is to prevent a boom." To which should be added: but if the worst happens, bring on Lord Keynes.
Copyright Speakers Corner 2016