Fears of Another Global Recession

The signs are not good.

I noted recently that Personal Consumption Expenditures (PCE) have been declining for the past 3 months and that when taken in conjunction with the two previous quarters of low GDP numbers this does not bode well for the economy. Since PCE is over 70% of GDP it is more likely that we will see negative growth for GDP in the third quarter if the trend persists, and it is also possible that the second quarter GDP is revised down and even negative. Basically, the economy is very weak and could be on the verge of another recession.

Well, this article over at Huffington Post lists additional reasons to be worried about the economy and on a global scale.

_ A survey by the Federal Reserve Bank of Philadelphia shows that manufacturing in the mid-Atlantic region contracted in August by the most in more than two years. The steep drop, on top of a smaller decline in a New York Fed survey this week, means U.S. manufacturing probably contracted in August, economists said.

_ U.S. home sales fell in July for the third time in four months, the National Association of Realtors said. Sales dropped 3.5 percent to a seasonally adjusted annual rate of 4.67 million homes. That’s far below the 6 million homes that economists say must be sold to sustain a healthy housing market.

_ In Asia, Japan’s exports fell for a fifth straight month. The world’s No. 3 economy has fallen into a recession since its earthquake and tsunami in March. Its weakness is contributing to the global slowdown.

_ Consumer prices rose 0.5 percent in July, mostly due to more expensive gas and food. The “core” price index, which excludes volatile food and energy prices, rose 0.2 percent. The higher prices add to the burdens for Americans already squeezed by stagnant pay, though economists don’t expect prices to rise much further. And gasoline has fallen this month.

Also Europe is having its own struggle with debt,

Investors are also growing more anxious about Europe’s sputtering economy and its leaders’ ability to resolve the debt crisis. European bank stocks accelerated their fall Thursday.

European banks are being forced to pay more for the short-term loans they need to finance day-to-day operations. Some with heavy exposure to the debts of Greece and other weak countries are relying on loans from the European Central Bank because other private banks are reluctant to do business with them.

The ECB said Thursday that one bank had borrowed $500 million a day for seven days through the ECB’s dollar lending program. It was the first time since February that a bank had used the program. The bank wasn’t identified.

And Morgan Stanley sees the risk of recession as 1 in 3.

Morgan Stanley’s calculation of a one-in-three risk of a new recession hinges, in part, on its expectation that Congress will let a Social Security tax cut, a business tax credit and extended unemployment benefits expire at year’s end. It calculates that the expiration of those measures would reduce U.S. growth by 0.5 to 1 percentage point in 2012

And James Hamilton over at Econbrowser also notes the decline in consumer confidence and the stock market behavior as bad news. Of course Hamilton doesn’t see these events as being sufficient to be more worried. However, in looking at his chart on events driving decreases in consumer confidence I see several where PCE declined. Well, we have had real PCE declines since March – June (FRED doesn’t have July yet), or three months. So how can we be sure that the decline in consumer confidence is simply due to the debt ceiling debate? So I’m not so sanguine about the drop in consumer confidence. I hope it was all related to the debt ceiling, but I’m skeptical.

And given all this negative data, and keeping in mind how high unemployment is and that in the last recession we add 4-5 percentage points to unemployment another recession could see unemployment climbing to 14-15% possibly even higher.

FILED UNDER: Economics and Business, Quick Takes
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Ben Wolf says:

    What else can happen during a balance sheet recession? The private sector is net saving in order to deleverage, which generates positive feedbacks that will cause the current depression to worsen. Markets need help at the very time we’re planning to pull the supports out from under it via austerity measures.

  2. john personna says:

    I think this deserves to be a top level story.

    FWIW, I’ve been a pessimist about the rate of US recovery for a couple years now. My first reaction to the resurgence in popular pessimism was “yeah, so?” After all, I gave early warning on austerity and its impact, bad “Japanese” decades, and the like.

    Now I’m thinking I should adjust my already pessimistic outlook downward. This is primarily because a _real_ failure in the Eurozone seems possible.

  3. Ben Wolf says:

    @john personna: I expect Germany will be the first to exit the Euro.

  4. legion says:

    Frankly, I think it’s worse than what Steve says. The failure of innumerate and undereducated members of Congress (mostly, but not entirely, Republicans) to get steamrollered out of the discussion during the recent debt ceiling talks, coupled with our idiotic embrace of obviously failed austerity measures pretty much guarantees the US, at least, will have a double-dip. I hear the Bank of England may finally have decided to stop doing the same thing & expecting different results, but the rest of Europe (especially the ECB) seems equally committed to economic suicide.

  5. Ben Wolf says:

    @legion: The only sensible option is for the Federal government to act as the employer of last resort. It’s perfectly fine for the feds to engage in deficit spending when the economy is operating below capacity, and it will counter the deflationary pressure markets are now experiencing. It will also aid state and local budgets by increasing their tax revenues.

  6. robert wilson says:
  7. john personna says:

    @robert wilson:

    I think resource-types tend to look at this through their filter, but that their filter isn’t really the first one I’d reach for. This is predominantly a developed economies debt crisis. At the same time there are some resource issues, but they are (a) secondary, and (b) clouded as people use resource investments to hedge currency risk in the debt crisis.

  8. G. lammert says:

    The Null Hypothesis and the Science of Saturation Macroeconomics

    On Monday and Tuesday, 22 August and 23 August there will be a global nonlinear equity crash of historical proportions.

    And on these two days one of the greatest hypothesis of the 21st century, ‘quantitative saturation macroeconomics’ will be validated.

    The debt/money/asset macroeconomic system has its own intrinsic very quantitative operating laws that represent ideal fractal time dependent self assembly of asset saturation curves and define the counterbalancing limits of the macroeconomic saturation system. An understanding of saturation macroeconomics as a science with self assembly and self organization laws equal to physics and chemistry and biology can potentially guide global economic policy, monetary policy, and banking money-creation policy, and change rules regarding speculation on leverage assets.

    These very simple laws were empirically observed in repetitive time based fractal patterns of varying time dimensions throughout the time based evolution of asset valuation curves and were defined in 2005 in the Main Page of the Economic Fractalist.

    x/2.5x/2x/1.5-1.6x . The first three fractal phases are asset saturation growth fractals and the final or fourth fractal is an asset valuation decay fractal. X is a unit of trading time whose dimension can be minutes, hours, days, weeks, months, years, or decades. The 1.5-1.6x fourth fractal can itself be composed of a decaying x/2.5x/2x/1.5-1.6x 4 phase fractal series or a y/2-2.5y/2-2.5y 3 phase decay fractal series. The third fractal is ideally 2x in length but can be extended to 2.5x in length if growth is favored by underlying money supply growth or if the preceding valuation decay is significantly great.

    On 11 August 2011 in Alpha’s The Economic Fractalist Instablog a final decaying growth sequence was predicted as a 27 July 2011 3/8/6-8/5 day 4 phase fractal with a potential of a 2.5x 8 day third fractal extension.

    The 20 August 2011 actual fractal progression is currently 3/8/7/3 of 5 days with a dropping of the Wilshire composite equity valuation near the 9 August 2011 interday low.

    The NASDAQ final fractal sequence leading to today’s near low begins its final fractal crash journey with its first base fractal including the key reversal day 3 year high on 2 May 2011. The first base fractal of the ensuing pristinely perfect x/2.5x/2x/1.5-1.6x sequence is a 13 day fractal starting 18 April 2011 and ending on 5 May 2011 intraday low to intraday low. The preceding end of one fractal is the beginning of the next fractal; incipient growth begins in final decay. There is an elegant integration process in quantitative saturation macroeconomics where larger initiating growth time unit, for instance, an incipient growth fractal denominated in the unit of a year incorporates a decay period of the last few of the final lower order time units, for instance, one or two terminal decay months of the preceding monthly low to low fractal series may be incorporated lasting into the follow fractal that last for a 100 months.

    32 trading days later, after the first 13 day fractal end on 5 May 2011, an averaged NASDAQ low was made on 20 June 2011. The intraday low fell two trading days before but the averaged low of June 20 was equivalent to the averaged low of that day and was decidedly lower than the 20 June preceding day’s trading average. Third fractal growth concluded 26 trading days later on 26 July 2011 with lower low gap between the 26 July and 27 July delineating the 4th decay fractal of an expected 26 July 2011 1.5-1.6x :: 20 to 21 trading days. 19 August was day 19 of the expected 20 to 21 day :: 1.5:1.6x fourth fractal.

    Interpolated terminal fractal sequences are everywhere:

    Starting on 14 July 2011 an interpolated fractal series : 3/8/6/5 days:: x/2.5x/2x/1.6x ending on 5 August followed by and starting on 5 August a 2/5/3 of 5 days :: y/2.5y/2.5y decay fractal…..

    Starting on 18 July 8/18 of 20 days x/2.5x …..

    Starting on 27 July for the 18 day second fractal of the 8/18 of 20 day fractal series: 3/8/7/3 of 5 days

    and finally starting on 18 April the reflexic fractal series proportionally identical to the 20/50/40 days x/2.5x/2x series that prospectively was predicted by Saturation Macroeconomics in the Huffington Post to be the Wilshire’s nonminal final high on 11 October 2007, a 13/32/26 day :: x/2.5x/2x reflexic growth fractal with a (decaying) 26th day lower high followed by a delineating gap and a 26 July 2011 19 of 20-21 day 1.5-1.6x 4th fractal which on 20 August 2011 is sitting on the edge of 154 year US Composite Equity second fractal nonlinearity that began in 1858..

    The Null Hypothesis for the Science of Saturation Macroeconomics

    Technically via the Chartist and in the qualitative perspective of a collapsing Euro Union and Euro currency and a polarized, nonnationalistic, corporate owned US government now hawking austerity, the 22 and 23 August 2011 asset collapse in weeks months years retrospectively will be perceived as obvious and expected. But the null hypothesis will remain: Why did the collapse occur on the 20th and 21st day of an ideal 4 phase 13/32/26/20-21 day :: x/2.5x/2x/1.5-1.6x Lammert fractal.

    Why did it end in precisely this time course. It is the implosion of the system’s supporting money supply that is causing the collapsing fractal patterns. This is how the macroeconomic system works.

    Null hypothesis: the collapse on 22 and 22 August 2011 is not related at all to the simple fractal quantum laws of saturation macroeconomics and the easily observed 18 April 2011 Lammert x/2.5x/2x/1.5-1.6x pattern of 13/32/26/20-21 days with the crash coming on days 20 and 21 of the defined fourth decay fractal is occurring by chance and chance alone.

    This null hypothesis can be applied to larger order fractals including the 34/84 of 85 Wilshire x/2-2.5x quarter (3 month) fractal beginning in 1982 and the 70-71/153 year US equity fractal beginning near the ratification of the constitution in 1788-89.

  9. @G. lammert:

    It’s like someone crossbred Jim Cramer with the Time Cube guy.

  10. john personna says:

    @G. lammert:

    If only it was that simple. [sarc.]

    (If there is not a global equities crash on 22 August and 23 August, I hope you will lock yourself in a room with “Fooled by Randomness” and not come out until you get it.)

  11. Ben Wolf says:

    @G. lammert: The obsession with mathematical economic models over empirical observation is a big part of why we’re in this mess now.