Is the US headed for recession?
That was the question in this video clip from last week. My answer is more likely than not, yes. And I think I’m being optimistic in hedging, frankly. The reality of course is that recession is a meaningless term when underemployment is already in the mid-teens during a so-called upturn. That’s one reason I have called this technical recovery “the Fake Recovery”.
Now Lakshman Achuthan of ECRI says the recession train cannot be stopped once it leaves the station:
Ominously, Achuthan says policymakers will not be able to stop this recession.
“Once the feedback loop starts, it’s more powerful than any policy response,” he says, adding policymakers’ challenge is not to make the situation worse.
I think that’s right. The sequence should go: consumers’ real hourly earnings to consumer spending to industrial production to capital spending to corporate profits. Employment and business spending are lagging indicators and are not drivers of the business cycle at all. Companies cut investment in human and physical capital as a result of a slowdown in the rate of change in consumption. That’s where we are right now. And this is a self-reinforcing dynamic both on the way up and the way down. Of course you can pile on debt to make up for a lack of wage growth or deleverage due to debt stress. This deleveraging is the secular force driving weak growth.
I don’t say this in the clip below, but I see this as a double dip recession just like 1929 and 1937 and 1970 and 1973 recessions were.
What is a double dip recession? Most people look at the time between recessions as the only variable that distinguishes a normal recession from a double dip. But Robert Shiller says a double dip recession is a period in which employment, production, income, consumption and growth dip, resume growth, and then dip again without necessarily re-attaining previous levels before the first dip began. Click on the link at the beginning of this paragraph for more thoughts on this.
Bottom line: I think we are in the technical recovery phase of a double dip recession that is a once in a generation period of balance sheet repair. To me, it’s a depression. Irrespective of what you call this thing we are living through, it is not good. Unemployment is sky high, wage growth is nowhere and we are still beset by crisis.
I wish I had something good to say, but the data are not showing any signs of a marked improvement in that overall picture.
UPDATE: Whoops, I forgot; Warren Buffett says
If you take our five largest businesses, all of them will either set records for earnings or just about set records for earnings this year. And in our retailing operations, we’re seeing same-store gains just like before.
Yes, I know Buffett talks his own book, but that’s one positive data point.