Bearish Economist Sees Signs of Recovery

Economist Ian Shepherdson, known for being one of the first in 2005 to warn about the coming U.S. housing crisis and subsequent recession, told CNBC Wednesday that he is now seeing signs of a recovery in 2011 as long as commercial and industrial lending from banks continues to grow.

“The larger corporate sector is doing quite well. Big manufacturers are doing really well now. But in the small business sector, we're seeing still jobs disappearing,” said Shepherdson, the chief U.S. economist at High Frequency Economics. “We're seeing very weak capital spending. We’re seeing very miserable sentiment, and I think a lot of that can be traced back to the problem with contracting credit.”

"[Commercial and industrial loans] has dropped by nearly 25 percent since the peak and that's a real squeeze on small businesses,” Shepherdson said. “They rely on banks to keep them going.”

“In the last couple of months that contraction in credit has slowed down and actually picked up a little bit trivially but it’s going in the right direction,” he added.

To see a healthier small business sector, Shepherdson said there needs to be a “sustained flow of credit” going back to small businesses.

“I want to see the weekly numbers that the fed gives us running at 5, 6, 7 billion a week, that would put real oil back into the small business engine and get it turning again, get them hiring, but it will be slow. Its going to take a long time to repair the damage.”

“But I do think that the seeds have been sown now,” Shepherdson added. “And looking ahead 6-9 months I think about the middle of next year things will look a lot better."