US recession may just be mild: Analysts
As the grim notion of recession appears to be taking hold in the United States, debate among economists is shifting from whether a downturn will occur to how long and how severe the slump will be.
By Agencies |
WASHINGTON: As the grim notion of recession appears to be taking hold in the United States, debate among economists is shifting from whether a downturn will occur to how long and how severe the slump will be. Whether the world���s biggest economy is in recession will not be known until later this year at the earliest, but a growing number of analysts have already made the call. ���Our view is edging closer to recession, albeit a mild one,��� said Joseph LaVorgna, economist at Deutsche Bank in New York, reacting to a spate of weak economic reports.
A key question is whether interest rate cuts by the Federal Reserve and a stimulus package passed by Congress will spark fresh growth or if the efforts will be, as economists say, ���pushing on a string���. The recession camp was bolstered in recent days by shockingly weak reports on job creation ��� showing the first loss in employment since 2003 ��� and a survey showing a contraction in the massive US services sector for the first time since the 2001 recession.
The latest data ���pretty much seals the deal on the recession call,��� said Myles Zyblock, analyst at RBC Dominion Securities. ���The question now turns to how long and how deep this contraction might be.���
Even at the Federal Reserve, where officials have generally avoided the ���R��� word, some officials have let the word slip out. Richmond Federal Reserve Bank President Jeffrey Lacker said that while he sees sluggish growth, ���I can also see the possibility of a mild recession, similar to the last two we have experienced ��� in other words, shallow and with a slow recovery.���
Morgan Stanley economists Richard Berner and David Greenlaw said in a note to clients, ���Recession has arrived, in our view, heralded by intensifying weakness in incoming data, and the economy faces a rocky road ahead.��� Berner and Greenlaw added however that the downturn will be limited and that 2008 as a whole will show modest growth of 1.3% after declines in the first two quarters.
They said the likely impact of tax rebates from the economic stimulus plan will provide a temporary boost but that a strong recovery is not likely until 2009, when they see growth at 2.7%. Others see a more ominous scenario and say the central bank and other officials have been slow to react.
Nouriel Roubini, a New York University economist, who has been bearish on the economy for over a year, said most indicators ���are heading south and suggesting a deep and severe recession that has already started.��� Roubini said the Fed is moving aggressively because it ���is seriously worried about this vicious circle and about the risks of a systemic financial meltdown.���
Joseph Quinlan, economist at Bank of America, said that regardless of whether a recession develops, the so-called ���misery index��� ��� the sum of unemployment and inflation ��� has reached a three-year high of 9.1%, a sign of growing trouble. ���With the US economy already on thin ice ... the higher the misery index in the coming months, the greater the odds of a consumer-led US recession,��� Quinlan said.
���The latter, in turn, could trigger a vicious circle of more job cuts, rising unemployment and an even greater level of retrenchment on the part of US consumers.��� Zyblock said rate cuts and economic stimulus efforts will help ease the downturn. ���We believe it to be premature to characterise current policy efforts as impotent,��� he said.
A key question is whether interest rate cuts by the Federal Reserve and a stimulus package passed by Congress will spark fresh growth or if the efforts will be, as economists say, ���pushing on a string���. The recession camp was bolstered in recent days by shockingly weak reports on job creation ��� showing the first loss in employment since 2003 ��� and a survey showing a contraction in the massive US services sector for the first time since the 2001 recession.
The latest data ���pretty much seals the deal on the recession call,��� said Myles Zyblock, analyst at RBC Dominion Securities. ���The question now turns to how long and how deep this contraction might be.���
Even at the Federal Reserve, where officials have generally avoided the ���R��� word, some officials have let the word slip out. Richmond Federal Reserve Bank President Jeffrey Lacker said that while he sees sluggish growth, ���I can also see the possibility of a mild recession, similar to the last two we have experienced ��� in other words, shallow and with a slow recovery.���
Morgan Stanley economists Richard Berner and David Greenlaw said in a note to clients, ���Recession has arrived, in our view, heralded by intensifying weakness in incoming data, and the economy faces a rocky road ahead.��� Berner and Greenlaw added however that the downturn will be limited and that 2008 as a whole will show modest growth of 1.3% after declines in the first two quarters.
They said the likely impact of tax rebates from the economic stimulus plan will provide a temporary boost but that a strong recovery is not likely until 2009, when they see growth at 2.7%. Others see a more ominous scenario and say the central bank and other officials have been slow to react.
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Merrill Lynch economist David Rosenberg said evidence of a recession is piling up with dismal figures from the Institute of Supply Management services sector report, ���the collapse in auto sales��� in January and ���unprecedented tightening in credit conditions���. This ���adds to our concern that we are facing a much deeper downturn than we saw in 2001,��� and means the Fed may be forced to make an emergency rate cut before its next meeting March 18.Nouriel Roubini, a New York University economist, who has been bearish on the economy for over a year, said most indicators ���are heading south and suggesting a deep and severe recession that has already started.��� Roubini said the Fed is moving aggressively because it ���is seriously worried about this vicious circle and about the risks of a systemic financial meltdown.���
Joseph Quinlan, economist at Bank of America, said that regardless of whether a recession develops, the so-called ���misery index��� ��� the sum of unemployment and inflation ��� has reached a three-year high of 9.1%, a sign of growing trouble. ���With the US economy already on thin ice ... the higher the misery index in the coming months, the greater the odds of a consumer-led US recession,��� Quinlan said.
���The latter, in turn, could trigger a vicious circle of more job cuts, rising unemployment and an even greater level of retrenchment on the part of US consumers.��� Zyblock said rate cuts and economic stimulus efforts will help ease the downturn. ���We believe it to be premature to characterise current policy efforts as impotent,��� he said.
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���Policy makers have learned from post-1989 Japan and the US experience of the 1930s that today���s collapse in real estate should be treated as a deflationary threat. We believe policymakers have begun, and will continue, to attack the problem with the seriousness it deserves.��� Download
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