Recession

U.S. Labor Market Continues to Disappoint

Ian McAllister — Thu, 19 Jun 2008 16:02:00 -0400

The number of workers filing new claims for unemployment benefits fell by 5,000 last week to 381,000, a smaller decrease than analysts had predicted. The four-week average of new claims, a less volatile measure, rose to 375,250 from 372,000, indicating that the U.S. labor market remains weak and far away from a recovery. Coming after last month's half percent spike in unemployment to 5.5%, these figures add further gloom to the current picture of the U.S economy and will put pressure on the Fed hold its target funds rate at 2% when it meets next week.

Snapshot asks, to what degree will falling consumer spending be exacerbated by labor market weakness?

Wall Street Journal - Jobless Claims Fall in Latest Week
Bloomberg - U.S. Initial Jobless Claims Fell to 381,000 Last Week
Reuters - Treasuries extend losses after jobless claims
Associated Press - Stocks trade mixed after dip in jobless claims

Prices Fall and Sales Rise, Light at the End of the Tunnel for Housing?

Ian McAllister — Wed, 28 May 2008 16:06:00 -0400

Housing prices continued their downward slide in April with a monthly decrease of 2.2%, a decline of 14.4% from last year's levels. In an unexpected twist, monthly home sales actually rose by 3.3%. Some optimists see this as an indication that the market is nearing its bottom and beginning to work its way through a massive glut of unsold homes as sellers cut their overvalued asking prices and buyers open their wallets to bargains. Others point to worsening consumer confidence and tighter lending requirements as evidence that April's sales figures were a statistical blip in a market that has much further to fall.

Snapshot asks, to what degree will further credit turmoil stop buyers from clearing the housing market?

Wall Street Journal - Home Sales Rise in Hard-Hit Areas
Bloomberg.com - U.S. Home-Price Index Fell 14.4% in March
Washington Post - Existing Home Sales Rise as Prices Plummet
New York Times - Home sales post unexpected April increase
Yahoo News - Home sales unexpectedly rise in April

Consumer Spending Sending Mixed Signals for U.S. Economy

Ian McAllister — Wed, 14 May 2008 15:23:00 -0400

A 0.2% overall decline in April retail sales masked divergent patterns in U.S. consumer spending. While auto spending decreased by 2.8%, spending on non-auto goods actually rose by 0.5%, a larger than expected increase. With consumer spending accounting for over 70% of the U.S. economy, some see this resiliency as a sign the economy may be closer to recovery than previously thought. Others say it's a statistical blip and expect continued contraction throughout 2008 as gas prices and inflation increase.

Snapshot asks, will high gas prices and weak auto sales further drag down consumers in 2008?

Financial Times - US retail data show signs of resilience
Wall Street Journal - Weak Recession? Not So Fast, Say Some
Haver - U.S. Retail Sales Fell, Non-auto sales firmer
Reuters - Bullish ex-auto U.S. retail sales cheer dollar

The Recession is Hiding in Housing

Sam Sherraden — Tue, 06 May 2008 17:05:00 -0400

Some are questioning whether the US is in a recession. Job losses last week were less than expected at -20,000. Many expected between -75,000 and -80,000. The stock market has rallied and the Dow Jones Industrial Average broke through the 13,000 mark last week. The Federal Reserve cut interest rates by 25bp but two members of the FOMC dissented. Richard Fisher, president of the Dallas Fed, and Charles Plosser, president of the Philadelphia Fed, argued there was no need for a cut. Despite a blip of positive news, the prospects for the U.S. housing market and American consumer are likely to continue to drag on the economy. For a graphic representation of how damaged the US housing market is, see Ben S. Bernanke's Mortgage Delinquencies and Foreclosures.

Snapshot asks, if this recession is led by falling housing prices and damaged consumers, when will it be worst?

Financial Times - US Jobs Surprise
BNP Paribas - US: Employment Falls Less Than Expected
US Department of Labor - U.S. Employment Situation April 2008
Wall Street Journal - Jobs Data Show Hopeful Sign, Though Economy Still Ails
Ben S. Bernanke - Mortgage Delinquencies and Foreclosures

No Sign of a Bottom

Sam Sherraden — Tue, 29 Apr 2008 20:49:00 -0400

The Conference Board's consumer confidence index fell again to 62.3 from 65.9 in March. The index was dragged down by the present situation index, which measures consumers' assessment of current economic conditions. Housing data also weighed on the economic outlook. Home prices from the largest urban areas around the country fell 13.6% in February from prices a year earlier. Given the slowing consumer and the rapidly declining housing prices, economists fear a "negative feedback loop," in which consumers, hurt by deteriorating house prices and poor consumer credit conditions, buy less and damage corporate profits.

Snapshot asks, will the struggling consumer keep the U.S. in a prolonged recession?

Wells Fargo - Atypical Recession - Atypical Recovery
Deloitte & Touche - Keeping Your Cool Through a Financial Crisis
Bloomberg - Harvard's Feldstein Says Economy in Recession, `Getting Worse'
Wall Street Journal - Consumer Confidence Stays Weak

A Bailout of Fannie Mae and Freddie Mac Would be Costly

Sam Sherraden — Tue, 15 Apr 2008 15:50:00 -0400

If the U.S. enters a deep recession, a bailout to Fannie Mae or Freddie Mac could threaten the United States' AAA credit rating according to a statement from Standard & Poor's. Government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac are large in size, have high common equity, and are highly exposed to a deteriorating housing market, leaving them vulnerable to a deep recession. If they go under and need a large cash infusion from the government, it could cost the country 10% more of GDP to service its debt.

Barron's - Is Fannie Mae the Next Government Bailout?
Wall Street Journal - Fannie, Freddie Could Hurt U.S. Credit
Bloomberg - U.S. Rating Threatened More by Agencies Than Bailouts, S&P Says

Has Stagflation Returned?

Sam Sherraden — Thu, 21 Feb 2008 00:00:00 -0500

The threat of a recession occurring at the same time as higher than expected inflation raises concerns about stagflation, a combination of inflation and stagnant growth not seen since the 1970s. Minutes from the January Open Market Committee meeting indicate the Fed will raise rates quickly to avoid inflationary pressures when concerns over slow growth subside. Despite inflationary pressure, investors predict the Fed will ease rates 50 basis points during their next meeting on March 18th.

Snapshot asks, are we or will we experience stagflation?

New York Times: That 70s Look: Stagflation
Federal Reserve Board: Minutes of the Federal Open Market Committee January 29-30, 2008
Bureau of Labor Statistics: Consumer Price Index Summary
Wall Street Journal: Two Front Fight for the Fed
Wall Street Journal: Fears of Stagflation Return As Price Increases Gain Pace
Bloomberg: Fed Sees Rate Low `for a Time' Then Possible Reversal
Frederic S. Mishkin: The Federal Reserve's Tools for Responding to Financial Disruptions, February 15, 2008

Global Economic Snapshot: U.N. and World Bank Weigh Impact of U.S. Slowdown

Sam Sherraden — Thu, 10 Jan 2008 00:00:00 -0500

Joining the chorus of U.S. recession-watchers, the World Bank and the U.N. jumped in with their own analysis. The World Bank sees a finite global impact, as "emerging markets will act as shock absorbers for the global economy, cushioning the impact of the US downturn and ensuring the world continues to grow at a decent rate this year," according to the Financial Times.

The U.N is not so sanguine, writes AFP: "A further slowdown in the world's major economy will hit many of the poor nations hard, as it will slow world trade and put an end to the boom in commodity prices that benefited them over the past years."

World Bank - Global Economics Prospects 2008
Financial Times - Emerging markets 'to help ease downturn'
U.N. - World Economic Situation and Prospects 2008
Agence France-Presse - US slowdown could spark global economic recession
Financial Times - U.N. warns of US recession threat