2008 July 01 Tuesday
United States In Slow Motion Recession

Have you noticed that the financial institutions are failing slowly and the real estate price drops occur over years? Though oil's rise has been fast and steep. So not everything that is going wrong is happening slowly. But the US economy's slide into recession has happened gradually rather than suddenly.

Among economists, the sense is broadening that the troubles dogging the economy will be stubborn, leaving in place an uncomfortable combination of tight credit and scant job opportunities perhaps well into next year.

Its a slow-motion recession, said Ethan Harris, chief United States economist for Lehman Brothers. In a normal recession, things kind of collapse and get so weak that you have nowhere to go but up. But were not getting the classic two or three negative quarters. Instead, were expecting two years of sub-par growth. Growth thats not enough to generate jobs. Its kind of a chronic rather than an acute pain.

Mr. Harris expects tepid economic growth and a shrinking labor market to persist through the fall of 2009.

Warren Buffett prophesized a long and deep recession. Buffett understand things better than 10 economists. So I'm expecting continued downturn into 2009 just because he says so. But on top of that I expect high oil and food prices to keep economic growth either low or negative.

Though the auto industry is in a faster motion recession.

Detroit automakers were hit hard. Ford Motor was down 28 percent in June, General Motors was off 18 percent, and Chrysler dropped 36 percent. Despite its sharp decline, G.Ms results were better than expected, which industry analysts attributed to a sales blitz with offers of zero-interest, long-term financing deals. The cut-rate loans helped G.M. retain its historic position as the top-selling United States automaker over Toyota, whose sales fell 21 percent.

I do not expect the price of oil to go down until the whole world sinks into a recession. I expect inflation to go up as oil goes even higher. Kevin Hassett reports that economist Mark Zandi expects a big surge in inflation.

Mark Zandi, chief economist for Moody's Economy.com and one of the savviest students of the economy, told me in an interview last week: ``Energy and food prices, which together account for one-fourth of the CPI, will rise nearly 20 percent annualized in the third quarter. Top-line CPI inflation looks destined to top 7 percent annualized in the third quarter. It is very possible that third-quarter inflation will be the strongest since the third quarter of 1981.''

In the early 1980s global oil demand dropped and so did the price of oil. But oil production isn't going to rise much and Asian demand for oil will keep rising faster. So higher oil prices are going weigh more heavily on the US economy every month.

Share |      By Randall Parker at 2008 July 01 10:46 PM  Economics Business Cycle

Bob said at July 4, 2008 5:50 AM:

Kevin Hassett is as dumb as a rock, the official economist of the neo-con warmongers at the American Enterprise Institute, and most famous for his book Dow 36,000.

Post a comment
Name (not anon or anonymous):
Email Address:
Remember info?

Web parapundit.com
Go Read More Posts On ParaPundit
Site Traffic Info
The contents of this site are copyright