Recession Probability Over 50%
Contrary to what Jim Haughey says, there has in fact been a drop in consumer durables spending and a surge in inventory accumulation. The Deloitte Research Leading Index of Consumer Durables Spending declined for the fourth consecutive month. There was an especially steep decline in December. According to the U.S. Census Bureau, inventories of manufactured durable goods in December were up five of the last six months and are “at the highest level since the series was first stated on a NAICS basis in 1992.” Inventories of manufactured nondurable goods were also up three of the last four months.
Has Mr. Haughey considered that the collapse in housing and mortgage markets is a symptom rather than a cause of the economy going into recession?
If Mr. Haughey thinks it is barely possible that an improving trade balance will help prevent a recession, it is a faint hope indeed. The balance of U.S. internaltional trade in goods and services did improve for most of 2007 but in November the deficit increased to $63 billion from $58 billion in October and was higher than its previous high for the year in March.
It appears that the declining value of the U.S. dollar has not improved U.S. exports enough to counterbalance the effect of the higher costs of imports. The monetary and fiscal stimulus of which he speaks is likely to depress the value of the U.S. dollar further.
On the bright side, a recession will reduce the U.S. demand for imports and further lower the cost of exports. It is more likely that a recession will improve the U.S. trade balance rather than the other way around.
The probability of a recession this year is now more than 50%. The last straw was the latest weak jobs and construction spending reports. Both were the weakest since 2003 and both were accompanied by downward revisions for recent months.