by Frank James
Presidents and their senior administration officials generally don’t like to talk about recession. Don’t want to talk down the economy and perhaps make it a self-fulfilling prophecy, the thinking goes.
That’s why President Bush today only mentioned recession once in his speech to the Economic Club of Chicago today and that was in a historical context. Bush was reminding the audience that his administration inherited a recession when it took office in January 2001.
But that doesn’t stop others from talking about recession, like saying that we’re in one or that, if we’re not technically arrived there yet, we can’t escape entering one at this point in the economic cycle.
Perhaps no publication champions the U.S. economy more than The Wall Street Journal. But the Journal is also known as one of the straightest-shooting, most informed publications around when it comes to economic reporting.
Which is why a lot of people took notice yesterday when the Journal reported that a majority of the economists it surveyed agreed that the U.S. economy had entered a recession.
As the Journal reported:
Economists in the latest Wall Street Journal forecasting survey are increasingly certain the U.S. has slid into recession, a view reinforced by new data showing a sharp drop in retail sales last month.
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“The evidence is now beyond a reasonable doubt,” said Scott Anderson of Wells Fargo & Co.
Thirty-six of 51 respondents, or more than 70%, said in a survey conducted March 7-11 that the economy is in recession.
The Commerce Department said yesterday that retail sales fell 0.6% in February; sales excluding the volatile auto and auto-parts categories fell 0.2%. The declines reflect a sharp slowdown in consumer spending, which accounts for more than 70% of U.S. economic activity, as Americans grapple with high gasoline and food costs and declines in home values and other asset prices.
The survey marked a precipitous shift toward pessimism from the previous survey, conducted five weeks earlier. The economists now expect nonfarm payrolls to grow by an average of just 9,000 jobs a month for the next 12 months — down from a previously expected 48,500. Twenty economists expect payrolls to shrink outright. On average, the economists predicted the unemployment rate will be 5.5% in December, up from the current 4.8%.
Those are the experts who believe we’re already in a recession, which is usually defined as two consecutive quarters in which the economy contracts.Then there are those who appear to be agnostic about whether we’re in a classic recession today or not who but see us heading there without any detours.
David Roche, a London-based investment analyst, has an informative op-ed in today’s Journal, which makes that point.
Even though the piece is written for someone with a technical knowledge of financial markets, one of its main points is fairly straight-forward.
We estimate that nonfinancial corporate debt ultimately will have to shrink by 11%-12%. This will generate a decline of five percentage points of real U.S. GDP growth and push the U.S. into recession. Europe’s real GDP growth will contract by two percentage points.
Globally, total credit losses of $1.4 trillion will cause a contraction in world GDP of 2.5 percentage points, or half the current rate of global growth. So the global economy will become a gray, dull world of semi-recession and sticky inflation that will last a long time. Without major policy blunders, however, it won’t be a 1930s-style depression.
I guess we’re meant to take comfort from that final line, that we’ll avoid a depression if the policymakers don’t hit the wrong buttons. Roche certainly lives up to this line on his “Independent Strategy” consultancy web site: “Our research is based on a thoroughly objective view of the world as it is, not as some might like to see it.”
Like an American president and his senior policymakers, maybe?