NEW YORK (CNNMoney) – The U.S. economy is staring down another recession, according to a forecast from the Economic Cycle Research Institute.
“It’s either just begun, or it’s right in front of us,” said Lakshman Achuthan, the managing director of ECRI. “But at this point that’s a detail. The critical news is there’s no turning back. We are going to have a new recession.”
The ECRI produces widely-followed leading indicators which predict when the economy is moving between recession and expansion. Achuthan said all those indicators are now pointing to a new economic downturn in the immediate future.
His recession call puts him ahead of most other forecasters. A CNNMoney survey of economists this week pointed to a one-in-three chance of a new recession in the next six months. The most bearish predictions put the odds at 50-50.
Achuthan said it is still possible that the recession will be mild this time, lasting less than a year with relatively limited job losses. But he said if there are shocks to the system, such as another financial meltdown due to the European sovereign debt crisis, it could become a very serious and deep recession.
His call comes the day after the government’s final report on second quarter gross domestic product, the broadest measure of the nation’s economic health, showed weak growth of only 1.3% in the three months ending in June. Achuthan said he’s confident that the recession either began in the third quarter, which ends today, or will begin in the fourth quarter.
The average American is already more bearish than most economists. A CNN/ORC International poll shows 90% of those polled believe current economic conditions are poor.
The last recession, which caused the U.S. economy to shrink by more than 5%, lasted from December 2007 through June 2009, and was the nation’s longest and deepest downturn since the Great Depression.
The recovery that followed has been relatively weak, and if Achuthan’s forecast is correct, short. Only once in the last 50 years has a period of expansion lasted less than three years.
That poses a threat to the economy, since it makes it less likely the labor market will be able to recover the jobs lost during a recession before falling into a new period of job losses.
“The reason some people feel like the previous recession never ended is no mystery; the jobs that were lost have not been recovered,” he said. “But we’ve added more than 1 million jobs in the last year, which only happens if we’re in a recovery. If you think this is a bad economy, you haven’t seen anything yet.”
Re: Forecast says double-dip recession is imminent
^^^
The main problem was not addressed in 2008 in my opinion. So the economic problem US and some other western economies are facing will keep reoccurring. Let me give you my take on the issue.
The main problem is the lack of long term vision by the government which have to face the electorate after every four or five years. Interest rates are not left to the market forces and are manipulated by the governments through central bank interventions/fixation of rates/controlling the money supply.. these political governments prefer to keep the interest rates very low as it gives a short term stimulus to the economy.
What has actually happened in past two decades is that the individuals/governments have started to live beyond their means because of these manipulated low interest rates and cheap cost of money. Nobody weather it's the government or individuals like to be told to actually pay for what they get. People like free goodies, and government likes to overspend and pay the nominal interest rates on these spent amounts.
Now these economies are caught in a vicious circle. Just imagine if interest rates are left today to the market forces they will probably reach somewhere in the vicinity of 10/15%.. The governments probably will not have even enough money to pay the salaries after they have paid interest on the debt they carry which is already spent.
I have read several articles which were written against the low interest rate regime which was introduced by Greenspan to stimulate the economy. Now these Greenspan policies had long term implication which we are seeing today.
In 2008 when the financial crises started it would have been beneficial for long term benefit that interest rates should have been raised step by step and over spending or living beyond means reduced step by step. The uS government did exactly opposite. They reduced the interest rates to practically nothing and increased the government spending to stimulate the economy plunging the economy in to more long term trouble.
Market forces are the best mechanism to introduce balance in any economy. The sooner interest rates are left to market forces, the better will be for the long term impact on the US economy. At present US has lost it's manufacturing base.. the next step will be losing the innovation which comes only with manufacturing. people and government don't want to hear that they must live within their means.. I see no short term/long term improvement for US economy.. unless they start addressing this core issue..!!!
Re: Forecast says double-dip recession is imminent
Very nice analysis - learnt a lot by reading above post. Just one comment - "At present US has lost it's manufacturing base.. the next step will be losing the innovation which comes only with manufacturing." Not sure if innovation comes only with manufacturing.
For long term investor, continuing to invest in the teeth of a recession probably is a winning strategy.
Re: Forecast says double-dip recession is imminent
Very nice analysis - learnt a lot by reading above post. Just one comment - "At present US has lost it's manufacturing base.. the next step will be losing the innovation which comes only with manufacturing." Not sure if innovation comes only with manufacturing.
For long term investor, continuing to invest in the teeth of a recession probably is a winning strategy.
I was waiting for someone to pick up this comment. In fact we should start a thread to discuss innovation although I am not sure which is the right forum to start the discussion on this topic.. could be philosophy.
Manufacturing is the execution arm of innovation. There are many brilliant people in the world with brilliant ideas but fail to execute these ideas due to lack of means. Manufacturing base give the ideas the tools for execution.
When I say manufacturing results in innovation, I have in mind a very long term prospective. Remember these Japanese companies like National, Hitachi, Sony etc started as copy companies for electronic appliances. Eventually they became the leaders of innovation in their sector.
However manufacturing base is not the only thing which initiates innovation. Cultural back ground, educational infra structure, historical back ground, communities, and many other factors also play a role in initiating the innovation.
In present times the dynamics have changed. Today the companies hire globally to pick the the cultural/educational strengths. It's not a coincidence that Italians have an eye for fashion details. it's in their blood due to thousands of years of cultural back ground. Businesses/companies recognize this factor and hire globally. In fact they buy innovation from where ever they can get it.
If you are interested to discuss this topic in detail we should open a thread on the topic and try to discuss this in detail. We need some more participants to give their input.
I agree with your statement that " innovation does not come only with manufacturing" but consider the present time dynamics of international businesses.. where cultural/regional strengths are exploited by manufacturing sector by hiring globally because they have the means to do it..
Re: Forecast says double-dip recession is imminent
^ I see your point. Taking an idea to practice needs manufacturing - a brilliant idea and demonstration in the lab is only half of the innovation - the rest comes from manufacturing - to take the idea to the next level.
Re: Forecast says double-dip recession is imminent
^^^
The main problem was not addressed in 2008 in my opinion. So the economic problem US and some other western economies are facing will keep reoccurring. Let me give you my take on the issue.
The main problem is the lack of long term vision by the government which have to face the electorate after every four or five years. Interest rates are not left to the market forces and are manipulated by the governments through central bank interventions/fixation of rates/controlling the money supply.. these political governments prefer to keep the interest rates very low as it gives a short term stimulus to the economy.
What has actually happened in past two decades is that the individuals/governments have started to live beyond their means because of these manipulated low interest rates and cheap cost of money. Nobody weather it's the government or individuals like to be told to actually pay for what they get. People like free goodies, and government likes to overspend and pay the nominal interest rates on these spent amounts.
Now these economies are caught in a vicious circle. Just imagine if interest rates are left today to the market forces they will probably reach somewhere in the vicinity of 10/15%.. The governments probably will not have even enough money to pay the salaries after they have paid interest on the debt they carry which is already spent.
I have read several articles which were written against the low interest rate regime which was introduced by Greenspan to stimulate the economy. Now these Greenspan policies had long term implication which we are seeing today.
In 2008 when the financial crises started it would have been beneficial for long term benefit that interest rates should have been raised step by step and over spending or living beyond means reduced step by step. The uS government did exactly opposite. They reduced the interest rates to practically nothing and increased the government spending to stimulate the economy plunging the economy in to more long term trouble.
Market forces are the best mechanism to introduce balance in any economy. The sooner interest rates are left to market forces, the better will be for the long term impact on the US economy. At present US has lost it's manufacturing base.. the next step will be losing the innovation which comes only with manufacturing. people and government don't want to hear that they must live within their means.. I see no short term/long term improvement for US economy.. unless they start addressing this core issue..!!!
The reason behind keeping low interest rate is to help housing market.
Re: Forecast says double-dip recession is imminent
^^^ its not a question of putting people in homes, but helping an industry. Housing industry in this country is huge & collapse of housing market is what casued this giant recession that is still having ripple effect around the world.
Re: Forecast says double-dip recession is imminent
^^^ its not a question of putting people in homes, but helping an industry. Housing industry in this country is huge & collapse of housing market is what casued this giant recession that is still having ripple effect around the world.
Giving loans to people who can not repay will make the financial sector go bankrupt. Exactly what happened in 2008. Without a viable financial sector you can not run any economy.
End of the day people/governments have to live within their means otherwise you will dry up the resources one day and there will be a collapse like the housing market collapse we have seen. The housing boom created by the speculators (due to unnatural resources which were being injected in this sector due to artificially low Greenspan interest rates) prior to 2008 made a lot of people very rich just because of the rise in prices. People leveraged themselves against the increased value of housing collaterals and spent this money to live way above their incomes/affordability.
True.. in the short term you can induce artificial demand to give a temporary boom to the industry.. with suicidal long term consequences..
Re: Forecast says double-dip recession is imminent
Another analogy is when companies buy back their own stock even if the stock is expensive or overpriced - their short term goal is to get the stock price up - in the long term it ends up hurtung the company - since it spent valuable cash on its expensive stock.
Kepping interest rates artificially lowo to support the housing market may provide a short term boost to housing prices - but at the end it is fundamentals that drive prices. No need to inflate housing prices by artificial means.