23 December 2007

Your MSM Christmas gift: A Recession

Time for some fun with the 'recession is imminent' meme at Christmas! No matter how good things are a recession is just around the corner...

That 2006 Christmas gift recession was just going to be awful in 2007, this from BusinessWeek 30 NOV 2006:

The Economy: Not Looking Like Christmas
The GDP, even revised up, is still down. Inventories have grown. And data like truck-freight stats are nothing you'd want under the tree
by Peter Coy

Don't jingle any bells for the U.S. economy as the holiday season heats up. From major headline numbers like the gross domestic product (GDP) report to out-of-the-way stats like truck tonnage, the economy seems to be stuck in below-trend growth. Let's hope Federal Reserve Chairman Ben S. Bernanke is right that things will get better in 2007. (see BusinessWeek.com, 11/28/06, "Questions for the Fed Chairman" and 11/29/06, "The Economic Outlook").

Start with the biggest number of the week: the Commerce Dept.'s Nov. 29 revision of third-quarter GDP. It looked positive at first glance: a 2.2%, instead of a 1.6%, annual rate of growth in GDP in the third quarter. Stocks even rallied, with strong gains from AT&T (T) and Dell (DELL) to ExxonMobil (XOM) and ConocoPhillips (COP) (see BusinessWeek.com, 11/29/06, "Stocks Rise on GDP Data").

Look At The Fine Print
But take a closer look. The 2.2% growth rate is still a deceleration from the first quarter (5.6%) and second quarter (2.6%), and is below the economy's sustainable path for long-term growth, which is a little below 3% per year.


Looking ahead to 2007, it takes a sunny disposition to share the Fed chairman's view, expressed in a Nov. 28 speech, that the economy will get back on or close to its regular growth path. The buildup of inventories will tend to dampen growth because companies don't need to produce as much if there's a backlog of unsold products. Housing will continue to be a drag as well. Residential construction fell at an 18% rate in the third quarter, even worse than originally estimated. That alone took almost 1.2 percentage points off the rate of GDP growth. And the inventory of unsold homes remains exceptionally high.

Now we can't have a sunny disposition around Christmas, can we?

Nor just after it, apparently, this from CNN, 26 DEC 2006:
Recession clouds darken 2007 outlook
Most economists expect slower growth and no downturn, but some recent signals are flashing red.
By Chris Isidore, CNNMoney.com
December 26 2006: 3:26 PM EST

NEW YORK (CNNMoney.com) -- The economy is stumbling at the end of 2006, setting off alarm bells that growth might not just slow next year but that the nation could tumble into a recession.

The recent trend of slower growth is not expected to be reversed any time soon. Home building and the broader real estate market are both already in a recession by most accounts and are expected to stay there well into next year. Manufacturing could soon follow, according to some recent readings.

While most economists are still expecting the economy to avoid a full-blown downturn next year, several say the odds of a recession have risen. Even the more optimistic analysts are looking for a slowdown in growth in gross domestic product (GDP), the broadest measure of the economy, to between 2 and 3 percent next year, from 3 percent or better this year.
Yes the odds of recession have risen!! Mind you this is with all of that current worries about folks taking out mortgages they could never afford in full play... the housing market was 'stumbling'!!

Happy New Year!

Just how was that 2007 recession, anyway?

Of course that 2005 look at the coming problems in 2006 was nothing to write home about, either, as seen by a WSJ article at SouthCoastToday.com 11 NOV 2005:
Economists see consumer spending dropping
By DAVID WESSEL, The Wall Street Journal

Will the triple whammy of higher energy prices, higher interest rates and a slowing U.S. housing market bring the long-forecast end to American consumers' buying binge just in time for the Christmas shopping season?

You would think so to glance at economists' forecasts for the fourth quarter. Consumer spending, adjusted for inflation, could fall for the first time since the early 1990s recession, they say. At best, they expect a tiny increase of less than 1 percent, far below the 3.5 percent-plus increases of recent quarters, measured at an annual rate.

Much of that reflects developments that depress spending temporarily, such as the ill-effects of the hurricanes. But the big factor is auto sales. They plunged in October as auto makers tried--unsuccessfully--to wean their customers off various incentives.

Still ahead is the economically important holiday season. Department, discount, clothing and electronics stores do about 25 percent of their sales in November and December; jewelry stores do one-third. With gasoline and heating prices siphoning money from consumers' wallets, the betting is that this year's sales increase won't match last year's strong one. Scott Hoyt of forecaster Economy.com sums up his Christmas forecast this way: "Not as good as the last two, but not as bad as the two before that."


With raises scarce, consumer spending has been sustained by Americans refinancing their mortgages and spending some of the proceeds. Americans pulled about $600 billion out of their homes in 2004. Lehman Brothers economist Joseph Abate figures that'll drop to about $540 billion this year and $380 billion in 2006.

This slowdown in consumer spending will hurt--not only consumers who may spend more on gasoline and heat and enjoy less of other things, but also auto makers, computer makers, cable-TV companies, ball clubs, retailers and other businesses that depend on consumers.

But the overall U.S. economy can continue to grow at a reasonably healthy pace--if business investment and exports perk up. The optimists say that's likely. Mickey Levy, chief economist at Bank of America, for instance, expects the moderating of consumer spending to be offset by a big boost in government purchases triggered by the hurricanes, healthy growth in investment by businesses enjoying fat profits and an improving export picture as Japan (finally) recovers.

At the Fed and some other quarters all this would be a very welcome outcome. "I…expect some slowing in the rates of increase of consumer spending…in response to higher interest rates and a less ebullient housing market," Fed governor Donald Kohn said in a recent speech. "In my view, these developments--housing markets coming off the boil and an accompanying gradual rise in household saving out of current income--would be favorable for fostering sustainable economic growth and better balance between spending and production here in the U.S."

Yes this 'housing crisis' we have today was due to the 'less than ebullient' housing market coming 'off the boil' in 2005 and prior to that, right? But that was due to the lovely recession of 2005 now, wasn't it? That is how WorldOil.com saw things in a FEB 2005 article, wantint to prepare folks for the really bad shock of 2005:
Congress likely to differ with Bush on US energy policy

John McCaughey, Contributing Editor, Washington

A second term, the political scientists instruct us, is often referred to as "the legacy term," in which a US President seeks one (or, with good luck, several) achievements that will define his role in history. This is all very commendable, to be sure, but the question is whether the buoyant (although not, of course, triumphal) President George W. Bush can deliver.

In energy, the signs are not encouraging. Washington energy lobbyists and other observers fear that the President will have as little success with his energy bill and other goals (such as opening up the Arctic National Wildlife Refuge to drilling) as he did in his first term. That is to say, no success. They fear that he will be preoccupied with spending his political capital on big-ticket items like Social Security, tax simplification and tort law reform.


Contrary to the bombast of the over-heated election campaign, the US economy is not in bad shape. Inflation-adjusted gross domestic product (GDP) growth is up about 4%, annually, over the last two years, or a half-percentage point better than the long-term average. But there is no shortage of threats - notably the price of oil and the falling dollar.

Oil prices are the biggest worry, not so much because of OPEC greed, but because of the long-running debate on when, exactly, global oil production will irreversibly peak. A pessimistic school argues that this could be as soon as within the next 10 years, with catastrophic consequences if mitigation measures are not put in train immediately (coal, nuclear and oil shale alternatives are most often mentioned; wind power and renewables just won't cut it).

OPEC (notably Saudi Arabia) beats a contrary, optimistic drum on reserves and production potential, but nobody with intelligence has believed OPEC production or reserves numbers for decades past. A forthcoming DOE study on global oil production peaking may throw light on the contentious topic, if the agency ever screws up the nerve to release it. Peaking aside, if oil prices stay at their present level (nudging $50/bbl), many economists predict a recession in 2005.
Yes, it was 'the economy, stupid' which wasn't doing so bad in 2004. But those $50/barrel prices on oil were sure to make a nasty recession, right?

Your Christmas joy for 2005, dampened:

Enjoy Your Last Christmas Before The Bear Market - by Paul Ferrell - Fox News, 14 DEC 2005

ARROYO GRANDE, Calif. — Yes, you heard me right: This is the very last Christmas before next recession and bear market. So make the most of it. Seriously, have fun, buy lots of presents (on credit), celebrate with the folks, eat hearty, enjoy the eggnog, kiss a cutie under the mistletoe, root for your favorite team on New Year's Day.

Have fun, because the party's almost over. The bets are that 2006 is going to be bad news for the market, the economy and your pocketbook. So live it up, folks! You may as well have one last big fling before reality sets in and the bottom falls out. Here's what some of America's meanest old Scrooges are saying to try to dampen your holiday spirit:

Jeremy Grantham of GMO ($135 billion assets) [..]
Gary Shilling, economist [..]
Bill Gross of Pimco ($475 billion assets) [..]
Fed Chairman Alan Greenspan [..]
Yes 2006 was such a gloomy year!

We knew this was so because George Soros said so, NewsMax 09 JAN 2006:

Soros Fears U.S. Recession, Housing Market Bust
Monday, Jan. 9, 2006


"I expect the recession to occur in 2007," he said, indicating that the Fed will spend some or all of 2006 raising interest rates to fend off inflation.

Soros predicted the Fed will increase the federal funds rate, now at 4.25 percent, to peak at 4.75 percent.

"Almost inevitably, they have got to overshoot because they can't stop (raising interest rates) until the economy shows signs of a slowdown," Soros said. "By the time it shows those signs it may be a little too late. I happen to be on the pessimistic side."

And Soros is hardly alone in his assessment that the U.S. housing market is in peril.

Bloomberg reports that the number of mortgage applications filed during the last week of 2005 were at a three-year low (of course, not many Americans purchase homes during the week between Christmas and New Year's Day). And David Heike, chief credit analyst at Lehman Brothers Holdings, tells Bloomberg that a housing slump will shave the U.S. growth rate by up to 1%.

In minutes from its Dec.13 Federal Open Market Committee Meeting the Fed indicated that American economic growth would slow down in 2006, but not significantly.

So there you have Alan Greenspan AND George Soros predicting doom 'n gloom to dampen the fading holiday cheer. Always toss the gloomy stuff up front and put the countervailing positive news at the end of the article, so it is already pre-gloomified. So much for 2006, just a full-on recession, I guess.

That recession of 2oo5 was going to be so awful! The Merk Fund said so on 12 AUG 2004:
New chapter in inflation/deflation battle: US economy is setting up for recession
Axel Merk, August 12th 2004
This article was written by Merk Investments before the Merk Hard Currency Fund was launched.

Employment growth in the US has stalled, corporate inventories are rising at alarming rates. CEOs say it's only a "soft patch" in the economy; Greenspan says its due to "transitory influences" of higher oil prices.

We disagree. Only a few weeks ago, Greenspan forecast that employment growth will accelerate, it's not a question of whether, but when. He was wrong. The massive stimulus provided by the Bush administration and Greenspan over the past couple of years has run out, and the economy has run out of steam. The next stimulus package will not be passed before the next administration is in office. Until then, the only stimulus we will get is the extraordinary multi-billion dollar cash dividend by Microsoft, some of which will find its way into consumer pockets around Christmas time, a boost to GDP by some estimates of 0.2%-0.3%.

Greenspan has acted to raise interest rates further this week. He had little choice as he has waited too long to raise rates and must get rates to a higher level, so that he can lower them down the road to provide a stimulus. Even at current levels, interest rates build inflationary pressures. Greenspan must also put a brave face on the economy, as the perception of his actions is becoming ever more important.

The inflation/deflation battle is unfolding, and it has taken a turn different from what we had seen as the most likely scenario. Over the past year, long-term interest rates have only reacted to economic growth, not to the inflationary buildup. This spring, long-term bonds collapsed, and we anticipated that inflationary forces would start to be reflected in long-term interest rates. Last week, it became apparent that both the rise, and - as of a few weeks -, the fall in long-term rates, are solely attributed to economic growth, or lack thereof. When it was confirmed last week that the economy is slowing down, long-term rates fell, the stock market fell, the dollar fell, gold rose.


A year ago, we believed that the most optimistic scenario to unfold would be a high-growth, high-inflation scenario. This is not happening, not with no additional stimulus for at least another 6-9 months and rising short-term interest rates.

The US housing market is topping out. In Southern California, one of the hottest housing markets, a rush of inventory has come on the market, but fewer buyers are around -- so far, prices are holding up. A collapse of the housing bubble would be a death blow to the US consumer, a consumer that was stimulated to continue spending throughout the past 10 years.

Every economic cycle unfolds differently. Just when central bankers thought they had seen it all, they are faced with new challenges. This will unfold differently from the stagflation of the 1970s, but we don't envy the winner of the upcoming election.
Not that a "Hard Currency Fund" just might spin things a little before they actually announce it... and how about that 'housing bubble' collapes being a 'death blow' to consumers? That has got to be one of the neatest wrestling holds ever seen - the bubble collapse death blow!

In case anyone missed it the US economy was coming out of a recession in 2004 the so-called 'jobless recovery' in which plenty of folks were still finding jobs. By 2005 that would be the haunting spectre to gloom up the recovery. This from Fox News, 15 JAN 2005:
Slow Job Growth Casts Shadow Over Sunny Economic Forecasts
Sunday, January 16, 2005

By Susan C. Walker

Midway through January, and the economic forecasts for 2005 are in.

The Conference Board predicts annual real gross domestic product (GDP) of 4.7 percent. That number represents the high end of the range, as a group of economists surveyed by The Wall Street Journal pegs it at 3.6 percent, while the White House declares it will be closer to 3.5 percent.

And here's some good news for those who are worried about inflation: the Federal Reserve says that "inflation and longer-term inflation expectations remain well contained."

So, decent GDP growth with few worries about inflation — the kind of reassuring outlook that says all will be well in 2005. Except for one thing: slow job growth.

A pessimistic report for job growth in 2005 got buried under the more optimistic economic forecasts. It's been lurking around since Dec. 17, when the White House announced it was scaling back its expectations for U.S. job growth. Instead of the 3.6 million new jobs it had projected for 2005 in early 2004, it now projects 2.1 million new jobs.

Let's take a look back to the beginning of 2004 to find out what the outlook for job growth was then. On Jan. 2, 2004, The Wall Street Journal reported that 54 economists it surveyed believed that "rising corporate profits and steady economic growth are expected to prompt companies to hire workers more aggressively in the months ahead."

But in July, the Christian Science Monitor (search) published a story on the economy that stated: "So far this summer, the job market is the economy's weakest link." Following a good report in October of 312,000 new jobs (revised), the latest report from the Bureau of Labor Statistics (search) was little more than half that number, coming in at 157,000 new jobs created in December. Wall Street had been expecting 175,000 new jobs for the month.

Here’s the point: This economic recovery is creating new jobs (and 2004 was the best year since 1999), but it's not creating enough new jobs to support a full recovery from a recession. And no one — not private-sector economists, not academic economists, not Council of Economic Advisors economists — had forecast such a scenario.
And, I take it, the economy tanked in 2005? The unemployed wandering the Great Plains like vast herds of Bison?

Then there was the post-9/11 Recession that was predicted to last well into 2002 (via FindArticles):

Yes, Virginia, there really is a recession - View Point - discount stores, drug store chains report good sales figure for Christmas season 2001 - Brief Article - Statistical Data Included

Drug Store News, Dec 17, 2001 by Rob Eder


While the economy may have bottomed out already, it is highly unlikely that any turnaround will be completed over the next 12 months. Consumers are going to get used to living with less and continue to respond to the strong value proposition in 2002. Drug chains may want to keep that in mind when they start thinking about next year's holiday promotions. They just might find themselves a destination for holiday gift shopping--and not just the last-minute variety.

I assume the drugstores shriveled up and died in 2002, along with everyone else...

And the recession that hit? Why it had been predicted for YEARS ahead of time, as witness by Greg Kaza in that 'recovery' year of 2004 at National Review Online, 04 MAY 2004:
“Clear Signs of Deterioration”
The Fed was worried about the economy in 1998.

By Greg Kaza

Tax-cut opponents may call the economic slide of 2001 “the Bush recession,” but the Federal Reserve was worried about recessionary indicators as far back as 1998, more than two years before President George W. Bush took office.

According to 1,065 pages of Federal Open Market Committee transcripts released in late April (after a five-year embargo), Fed chairman Alan Greenspan worried privately about deteriorating economic conditions well prior to Bush’s election or candidacy, with FOMC members repeatedly expressing concerns about the manufacturing sector.

“The economy has been holding up,” Greenspan said in a Sept. 21, 1998, teleconference, “but it is now showing clear signs of deterioration, including anecdotal indications of some softening that we are now picking up at an increasing pace.” This September meeting was called to discuss the first of three consecutive monthly reductions in the federal funds interest rate. The last time the Fed took such action was in late 1991, the year the last recession ended.

The transcripts supplement economic data that show serious problems in the private manufacturing sector well in advance of the recession, which lasted from March to November 2001.

Manufacturing employment, an important indicator, peaked in March 1998. Fed bank presidents representing districts in industrial states (Michigan, Ohio, Wisconsin, and Pennsylvania) are quoted in the 1998 transcripts discussing manufacturing problems in those regions.

At the Aug. 18, 1998, FOMC meeting, Chicago’s Michael Moskow referred to “weakness” in durable-goods manufacturing employment. Anecdotal evidence of such weakness was discussed at two FOMC meetings the following month.

“While the economy is operating at a relatively high level,” said Philadelphia’s Ed Boehne on Sept. 21, “I have sensed a notable change of sentiment in recent weeks. It had been largely in the manufacturing area, but it now appears to have spilled out into broader sectors of the economy.”
Anyone ever hear of the 'internet stock bubble'?


So maybe it was just more than 9/11... or course that would leave President Clinton's policies a bit at fault. And far too much venture capitalism in the tech market and, well, a recession is just around the corner anyways.

Especially at Christmas! Economic gloom is the perfect gift for holiday cheer.

Merry Christmas!

And remember that lump of coal in your stocking is 'recession proof' as you can't go much further down than that with Santa...

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