- Inflation rising (sign of stimulus packages working?) perhaps?
- Or maybe house prices stabilising?
The most important data will be seeing positive economic growth. Everyone will breath a sigh of relief to see and end to the plunging output data.
Another key factor will be the banking sector. When bank lending returns to a sense of normal conditions, it will represent a big step in the right direction. Ben Bernacke has recently suggested there are positive signs in this direction. E.g. with citigroup and Merryl Lynch both reporting they were returning to profitability. This is a sign they may start to lend more - without requiring government spending. He suggests because of this development "We'll see the recession coming to an end probably this year," [Guardian link] However, he also warns about the lack of political will to effectively deal with banking problems.
More difficult will be stability in the housing Market. Falling House prices depress consumer spending, consumer wealth and consumer confidence. Any recovery during a period of falling house prices will be tentative at best. This is especially true in the UK where housing makes up a large % of consumer wealth. A sustained period of rising house prices would be great for the economy. However, that may take much longer to occur. In the last housing crash house prices fell for about 4 years. We will hopefully have an economic recovery before waiting for housing market to recover.
There is also a danger that at the first signs of recovery, the brakes may be slammed on again. Previous growth was based on rising house prices, low savings, high debt. These conditions will not return. There is every danger that any recovery may only be fleeting and we could enter into a double dip recession.
For example, many are concerned that the economic stimulus packages are causing an unwarranted rise in National Debt. Therefore at first chance of recovery governments may put up taxes and cut spending. This could plunge economy into recession again. (e.g. like Roosevelt's deficit reduction budget in 1937, stopped the recovery from the Great Depression. (see article: Life Without Bubbles by Paul Krugman)
Even if we see a return to positive growth, we are likely to experience a long period of high unemployment. Therefore, although the statistics may show a recovery, the reality is that many may feel we are still in recession. I would imagine unemployment will rise to 3 million in the UK. After the 1981 recession it took several years for this figure to fall.
Deflation or very low inflation is definitely a symptom of economic recession. A more positive inflation is a guide the economy may be recovering. But, it is a limited guide to economic recovery.