7/11/2012 4:58 PM ET|
A new US recession? Not yet
Never mind economists predicting gloom and politicians playing the blame game. There are enough positives to avert a recession -- at least this year.
There's nothing like a presidential election to make everyone hypersensitive to what's happening in the economy. Republican challenger Mitt Romney pretty much wants things to fall off a cliff so he can gobble up votes. President Barack Obama wants the opposite, while pinning any blame on Republicans in Congress. Political operatives pounce on each data point -- such as last week's mildly disappointing jobs report.
America's economy is being pulled down as much of Asia hits the skids and a growing chunk of the eurozone falls into a technical recession. The June Institute for Supply Management report on factory activity issued last week showed its worst result since the recession ended in June 2009. Job growth has become anemic, with a second-quarter monthly average payroll gain of just 75,000 -- down 70% from the 226,000 average pace seen in first quarter. Retail sales have stalled.
But evidence suggests that, for now, America will avoid falling into an outright recession this year. Sorry, Mitt.
Oh, it could still happen eventually -- and early 2013 will be a critical period, given the fiscal cliff the nation is facing. (More on that later.) But rays of light are beginning to shine through, and they should, for the next few months at least, keep the darkness at bay. Let's take a look.
Reasons for hope
For one, the recent spate of poor U.S. economic data is merely catching up to other countries' poor data. Indeed, while U.S. factory activity disappointed, data out of China, Australia and Europe surprised to the upside slightly. According to Credit Suisse, last month's dramatic drop in the ISM factory new-orders index -- which fell to April 2009 levels -- merely brought the measure in line with its economic models suggesting growth of gross domestic product of around 1.1%, instead of the 1.9% suggested by earlier data.
Also, investor sentiment remains very, very negative, with many betting heavily against risky assets (such as the euro) and piling into defensive assets such as U.S. Treasury bonds, while, according to the latest futures data, big commercial traders are taking the opposite side of those trades. Historically, when this has happened and the economic data have disappointed to the extent they do now, the stock market has been near a major trough. Recent examples include August 2011 and September 2010.
There's more. The housing market, while not fully healed, has stabilized. Prices are firming. The gap between supply and demand has narrowed. And a red-hot rental market -- since people who can't get or don't want mortgage financing in this environment still need places to live -- is encouraging new construction of multifamily units.
Indeed, Bank of America Merrill Lynch economists expect new housing construction to increase about 20% this year, which, when combined with an uptick in renovation work, will add 0.2% to GDP growth. That's the first positive contribution for the sector since 2005. And while they don't see the final low for home prices until 2014, we're definitely on the right track -- especially if the Federal Reserve starts to actively push down borrowing costs by buying mortgage-backed securities later this year, as is widely expected.
Household finances are getting better, too, as people use any means necessary -- including default -- to work down the credit excesses of the housing bubble. You can see this in the ratio of liquid assets to liabilities, which compares assets like bank deposits and stocks to liabilities like mortgages and auto loans. The ratio, which is largely determined by stock market performance, jumped from 1.99 in the fourth quarter of 2011 to 2.11 in the first quarter of this year, the largest quarterly increase since the end of 1999, and is at its highest reading since 2002.
It's likely to have fallen in the second quarter because of reductions in debt. In the first three months of the year, household debt fell $48 billion -- the fourth decline in five quarters and the 12th drop in 14 quarters. This came despite an increase in consumer credit, a sign that people are paying down or simply giving up on their mortgages but are relying on credit cards and student loans.
Even the drop in manufacturing activity isn't as bad as it seems. While the ISM manufacturing index fell to 49.7 in June from 53.5 in May (any reading under 50 indicates month-to-month contraction), that by itself is not a recessionary signal. Historically, according to Capital Economics, the measure needs to drop to at least 47 to be consistent with an outright decline in the economy, or recession. The ISM states the break-even point is a reading of just 42.6. We're far from that.
The larger services sector of the economy is hanging tough, with the ISM non-manufacturing index falling to 52.1 from 53.7. This makes sense, since manufacturers are more sensitive to what's happening in China and Europe, while service providers are keyed to the U.S. consumer.
And finally, the Conference Board's Leading Economic Index, which increased 0.3% in May, suggests GDP growth should maintain a pace of around 2% going forward. An increase in building permits (multifamily starts) and low borrowing costs are the reasons for the perceived strength.
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A new recession?
WE NEVER LEFT THE OLD ONE!
Stop already with the recovery came 2009 BS.
Funny thats the exact year me and thousands were laid off due to jobs being sent overseas and company cutting costs and heads of anyone 50 and older with 10 or more years on the job.
Sorry guys but I still have not seen any recovery- especially since all I can get is a part time minimum wage security guard job and this is 3 years later at 58.
This after 39 years solid work experience with 12 at my last company.
Unless of course the grossly underemployed barely surviving with no health coverage for his family or self is the new norm of SUCCESS and Middle Class?
WE NEVER GOT OUT OF THE "DE-CESSION"!!!!!
As usual, the author is an idiot.
Since when did the recession end. What a bunch of b.s.. You can't talk about another recession when the current down turn has yet to end. The rich got richer and the rest of us are struggling.
Oh by the way FreedomGhost........the exportation of jobs didn't start with Obama. When those bums we call the corrupt Congress signed the NAFTA law......many jobs were eliminated and alot ended up in China. We make more goods overseas than we do in this country.
Oh my and people still call this mess a RECESSION! Folks we been in worst DEPRESSION of all time since 1986!! Caused by Greenspan! Then he caused the mortgage mess, jeez! We are in a depression and only way out is to stop all foreign trade and reopen our factories, then we flood the world with the best made products available; instead of having to buy and use Chinese and Mexican made JUNK!
However as long as Washington helps the rich corp owners we are never gonna get jobs back.
When a recession doesn't end, it's called a depression. That's what we're in.
Anthony changes his tune every time he writes an article. If the economy goes up slightly, then he says we're on the way to recovery. If it goes down slightly, then he says we're headed for a recession. But hey, he's got a job and I don't begrudge him for that.
tony tony tony.....stop lookingat the charts....the retail investor is gone he has lost total
confidence in the ability of the markets to give him a level playing field....only institutional
investors and professional traders have the techology and the informantion to make money.
and as far as the economy goes there are two points you should be concerned with.
1. older investors who are savers are making bupkis from thier savings..that means they cannot
spend...and because they can't spend businesses can't sell their goods and services...that means
they can't hire and that's called a depression
2. younger college graduates can't find jobs...53% of them..that means they also can't spend
on houses, food, and cars...among other things..it also puts a drag on their parents who instead
of spending on normal consumer stuff have to shell out just to make sure their progeny doesn't
so the moral of the story is...that whatever your charts tell you is worthless...their will be no
ralley until the situation is stable and that means when the congress gets its act together and not
Totally Out Of Touch,
The problem with the reports that are pandered to the public concerning the economy is that they are prepared by stripe-suited gurus who make 6 figures a year, and who surround themselves with others who are in the same economic class. They are completely out of touch with the tens of millions of Americans who 'know' we are still in a recession and on a daily basis must make choices between a bag of groceries, a doctor's visit for a sick kid, gas in the 12 year old heap they drive or making the electric bill before it's shut off. That is the reality of this economy for the past four years for most working Americans ... not the percentages of profit and loss by the Fortune 500 corporations and their gold-plated CEOs who make more money in one day than the average person does in a damn year. Perhaps the' real' economic news should be written by someone in touch with reality who works all week for $10.00 an hour and can not feed his family or buy his kid some new clothes for school. The professional Wall Street BS artists are living on another planet... and it isn't Earth.
Peace to all
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Equities climbed steadily since the opening bell as investors prepared for tomorrow's policy decision from the Federal Reserve. Although chatter in recent weeks has included speculation the Fed would look to taper its asset purchases, today's broad gains suggest investors expect mostly reassuring words from Chairman Bernanke at tomorrow's press conference.
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