It's been a tough slug since this rotten recession began, bringing jobs and companies such as Potash (NYSE: POT), Blackstone (NYSE: BX), and General Electric (NYSE: GE) down with it.

The good news is that the economy is in a bottoming process right now, according to Bruce Yandle, interim dean of Clemson University's business school and professor of economics at George Mason University's Mercatus Center. Yandle is perhaps best known for having developed a theory called "Bootleggers and Baptists" to explain political behavior.

"Recessions start when the economy is at peak growth," Yandle said on a recent visit to Motley Fool Headquarters. "The peak defines the beginning of the recession. Recessions end when they can't get any worse. We're getting to the point where we're beginning to flatten out. When we're flattening out, [we're] bottoming."

Yandle pointed to a couple economic indicators that signify the U.S. economy is bottoming: the Institute for Supply Management (ISM) services and manufacturing indices. The ISM index for manufacturing, which sharply dropped from September (at the time Lehman Brothers collapsed) to December, has begun to recover, signifying that a bottoming process is in the works. The same goes for the ISM services index. Though still erratic, the index is moving upward. A reading of 50 on either scale is neutral. A reading above 50 means the economy is expanding; below 50, the economy is contracting. While the latest readings for both indices are still below 50, they are moving back up toward that mark.

Although the economy is troughing, Yandle said it won't actually post positive gross domestic (GDP) growth until the first quarter to mid-year of 2010, which he said will be tepid at best.

The long-term trend for our economy has averaged 3.5%, and he says we could see growth below that level in the coming years. "We're not getting back on the yellow brick road," he said.

Recovery drivers: The employed and entrepreneurs will fuel recovery
Who will we rely on to fuel economic recovery? Traditionally, the consumer is the one to help our economy out of the doldrums, and Yandle says this time is no different. While unemployment is approaching 10%, and will most likely climb to that level, he points out that "employment efficiency" is still at 90%. "It's that 90% of the country that is employed that will pull us out; not monetary policy," he says.

To that end, Yandle says those that have lost their jobs will be forced to be creative, spurring innovation and fueling recovery. According to Yandle, historically following every recession, the number of entrepreneurs, or "non-employer firms" (firms that have only one employee with the rest being contractors), increases. Currently, 75% of firms in the U.S. are non-employer firms. Yandle thinks we're poised have the largest surge in entrepreneurs in the next three to four years as a result of government policy and people who lost their jobs.

Risks to recovery
Though the economy has gone through much of this virus, there's always the risk that another shoe will stomp on the anemic recovery. One potential pitfall is a large number of adjustable-rate mortgages (ARMs) that are subject to adjustment over the next 10 months. Depending on which direction interest rates move, those mortgages could adjust up or down. Continued...