Over the last few months, there’s been a fair amount of discussion about whether or not the US was headed into a second recession. It started over the summer as manufacturing indexes dropped, mostly in reaction to to the EU situation, but also as a result of the slowdown caused by the Japanese earthquake. This was followed by a slowdown in service sector growth, continued poor readings in the housing and employment market, and a weak 2Q GDP reading that never really gained any upward momentum. Over the last month, ECRI announce a new recession was baked in the cake — an announcement which I and NDD found not credible.
However, lately the news has been slightly better. The biggest reason for this change is the initial 3Q reading on GDP, which came in at 2.5%. Making this a somewhat more optimistic number was the fact that had inventory adjustments simply been 0 in the report, GDP would have risen by 3.5%. In addition, employment, while not great, continues to print some job growth. And the latest few household employment surveys have been fairly encouraging — which can also be said of the initial unemployment claims numbers. In short, the latest news has been fair, but not great, helping to tamp down the fear of a double dip.
As we move forward, we’re pretty much back to where we were at the beginning of the year — fair growth that is unfortunately not strong enough to encourage massive hiring on the part of employers. More importantly, we still have the same storm clouds on the horizon — an EU situation that is dicey at best, rising oil prices, and a Federal government that makes the Manson family look functional. Growth from a monetary expansion led liquidity drive is not going to happen as loan demand is incredibly weak. This more or less effectively neuters the Fed. And with Washington run by children (scratch that; childish behaviour would be an improvement), we can’t expect any meaningful help from our elected officials. So, we’re back to GDP growth in the 0-2% range with a nibbling at lowering unemployment, but no real hope for a significant drop.