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Recession is a close call but not going to happen
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The U.S. economy may be on the verge of -- or already in -- a recession, based on the increase in 2007's unemployment rate.The jobless rate rose to 5 percent in December, the highest in two years. The figure was 0.6 percentage point higher than March's 4.4 percent, which was the lowest reading of the expansion that began at the end of 2001.
Since 1949 the unemployment rate has never risen by this magnitude without the economy being in recession.The market now put themselves on recession watch.
Before the start of the last contraction in March 2001, the unemployment rate rose just 0.4 percentage point, according to Labor Department figures. The rate barely rose at all ahead of the 1990-91 downturn, one reason why economists consider it a so-called lagging signal.
The National Bureau of Economic Research, which determines when recessions begin and end, defines them as a ``significant'' decrease in activity over a sustained period of time. The declines would be visible in gross domestic product, payrolls, production, sales and incomes.
The increase in the jobless rate is disturbing indeed.A lot of people would rule out that a recession is pending. I would not. It's too early to say and it's perhaps not very likely that it will come, but I would not rule it out.
I still think USA will avoid recession.However stocks will continue to fall until the market notices tha fact. November-December job figures were somehow do not reflect the reality because it was a shaky month before and the businesses lost the confidence in the economy.However it is possible to revive the economy not by only rate cut also by economic stimulus package.
Economy Changing
The reason other indicators, such as sales or payrolls, have yet to unequivocally signal a downturn has begun is because the U.S. economy has undergone significant structural changes.The economy managed to eke out an 18,000 gain in payrolls last month thanks, in part, to increases in hiring by health care companies and restaurants.
An ageing population with an increasing propensity to eat away from home suggests those two categories could continue to add jobs in coming months, preventing payrolls from sending the telltale recession message.
However there is no doubt in my mind that we are into a recession-like economy.
The technical definition of a recession may be out of date because the make-up of the economy has changed.
Consumer Spending
Another key area that has yet to issue any alarms is consumer spending, which accounts for more than two thirds of the economy. Spending figures in November were stronger than forecast even as gasoline hovered around $3 a gallon and property values slumped.
That leaves the onus on December retail sales figures, due from the Commerce Department on Jan. 15, to determine whether the American consumer will indeed falter.
The market is spooked by this week's data and very open to a much weaker economic scenario.Today's jobs report also showed more industries were cutting payrolls than increased hiring last month. The so-called diffusion index dropped below 50, signaling contraction, for the first time since September 2003.
Meanwhile, Federal Reserve's vice chairman acknowledged on Saturday that the central bank's message had been clouded by a difference of opinions being voiced by policy-makers, but warned markets to learn to live with it.
The resulting dispersion of messages has bothered market participants seeking clear, unambiguous guidance about the views of the central bank.Critics complain the Fed has managed to sound both dovish and hawkish at the same time -- cutting interest rates while warning on the risks of inflation in policy statements.
This hints at a split between policy-makers that critics find worrisome, because it raises doubts about how far the Fed will be prepared to cut interest rates to shield the economy from a slumping housing market, increasing the odds of a recession.
From my point of view,the public should understand that the FOMC (Federal Open Market Committee) members do not coordinate schedules and messages, and that members' views are likely to be especially diverse when, as in the current situation, circumstances are changing quickly and are subject to many different analyses.I see a strong chance for no rate cut at all and an emerging market crisis in coming months.
I think it will be difficult 6 months ahead.I expect the order as this: housing bubble-recession and emerging market bubble.These 3 reasons will dominate the markets for a while.I believe emerging market bubble will also go down this year.For this week, I expect a slight recovery and I am specially hopeful for financial stocks this week in the light of possible rate cut speculation.Producer price index is a key to determine the way for markets.If it is higher than expected the stocks might continue to fall. |
| Tarih
: 07.01.2008 |
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© 2006 Mert TOKER All Rights Reserved. |
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