Is the next recession looming?
Monday, December 5th, 2011
Is another recession looming around the corner? Richard Yamarone studies economic indicators, and he thinks so. The Bloomberg economist spoke to Chamber of Commerce members in Knoxville recently to make his case for what he termed “the dark side”: that the economic recovery is stalling and another recession will begin next year.
Mr. Yamarone, who appears regularly on Bloomberg TV and recently revised his book The Trader’s Guide to Key Economic Indicators, studies many different charts to discern trends and create forecasts for companies, industries, and the economy as a whole. He told us that during the last few months, the uptrend in many key indicators has flattened or even turned negative, leading him to forecast a coming recession. He is quick to say that this is one expert’s opinion, and there are other experts who disagree. But as he laid out his case, many in the audience saw the logic behind his projection.
Here are some of his thoughts, based on macro- and micro-economic indicators:
- The economy is not advancing fast enough to engender job creation at a meaningful level.
- While the economy is growing at its historic pace, it is operating well below its potential, and it is not making up for the substantial loss incurred since 2008.
- The lag between the ends of recessions and recovery of lost jobs doubled the historic average in the previous recession (2001). With job loss dwarfing all but the Great Depression, the time it will take for jobs to recover from the most recent downturn is unknown, but it could be several years.
- When industrial production has revived following recent recessions, manufacturing jobs have not returned to pre-recession levels.
- If gross domestic product (GDP) growth drops below 2% on a year-to-year basis, recession follows; GDP growth has been hovering at that level since mid-2011.
- The government has been propping up the economy, but even as jobs begin to recover in the private sector, governments at all levels are reducing staff and services.
How do these predictions affect your business? Should you adjust your forecast and budget for next year?
Next time, we’ll look at some of Richard Yamarone’s favorite industry indicators that he uses to predict turning points in the overall economy. His insights come from some surprising sources.
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