The high price of oil and food is putting Reserve bank
Breaking News World and US News Stories. Technology updates from around the world Front Page. The prospect of recession again America. America has entered in greater danger of recession than at any stage since the collapse of the internet bubble in.
Largest economy struggles to maintain growth in the face of the credit squeeze. While the current three months are to be much better and could even be worse.
The only question is whether the economy will struggle through this sickly period and gradually regain strength over the course of the year. Thirds of Americans believe the US is either in recession now or will be in.
President of the National Bureau of Economic Research. Put the odds of recession at close to. Because say it is almost impossible to forecast recessions and.
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There have been only two brief and shallow periods of negative US growth. We have had an awful lot of bad news. It is not a sure thing we are going to have a recession. But nor do I have great that we are going to escape.
With risk spreads rising on securities that have no direct connection with the troubled housing or financial sectors. Yet the Fed and most economists still say the single most likely outcome is that the US will make it through a rough patch and regain strength by the second half of. With finance and housing executives much more than their counterparts in other sectors. If you talk to people in financial markets.
They see positives in the economy that tend to offset the negatives. The end of the bubble has brought a brutal slide in home construction. House price falls that threaten to undermine household wealth and consumer spending. And turmoil in the credit markets that are used to finance housing. The US has endured financial crises before with little or no effect on the real economy. Now the credit crisis poses a direct threat of its own to the US economy.
The secondary market for mortgage securities is dysfunctional. Throttling the supply of many types of home finance and thereby putting further downward pressure on the housing market. Banks are being forced to take tens of billions of dollars in housing.
While incurring massive writedowns on these and other securities. Though the final extent will not be known until house prices stabilise. It appears that a large share of the ultimate risk remained with big US commercial and investment banks. So analysts fear that balance sheet strains will force these banks to pull back on lending both to consumers and to businesses outside the housing sector.
As they take these investment vehicles on board and realise they have got outstanding obligations where they provided lines of credit. One sector that looks particularly vulnerable to any pullback in credit is commercial property. Which has boomed over the past year. Helping offset the decline in residential investment and keep building workers in employment. House price declines were offset by gains on equities and other business assets.
But some studies suggest the effect could be much larger. The magnitude of the fall in house prices itself is a prime candidate to cause a recession. What it has done to the construction industry and household finances. The high price of oil and food is putting
“> strains on consumer spending. Says the rise in energy and food prices between June and December alone. Economists would expect the price of oil to fall when the US economy is weak.
But strong demand in China and India plus geopolitical tensions in the Middle East are keeping oil hot. Is why the probability of recession is not much higher than per cent. One reason is that the US had made some headway in dealing with the excesses in housing before the credit crisis erupted this summer. The construction sector has subtracted from growth for roughly a year. But the fact that the US economy has already absorbed a halving in home construction greatly improves the chances of avoiding recession. And took advantage of low borrowing costs prior to the latest financial turmoil to lock in cheap long.
This view is reflected inside the Fed where. On the board of governors have been willing to consider pre. With strong ties to local business leaders. Have been reluctant to ease too aggressively. Pending more evidence of such spillovers outside housing. Either the credit markets will drag down the non.
Housing economy will ultimately drag the credit markets upward. The economy may be able to hang on long enough to win out. Helped by the decline in the dollar over the past couple of years coupled with a slowing in US growth relative to that of other big economies. The from net exports to growth in gross domestic product will probably decline as growth eases abroad.
Point to growth in the coming quarters. Are also up the stock market. Business investment is muted and the latest durable goods report raises concerns that companies may be pulling in their horns.
But there is little sign that investment is falling off a cliff. The early data on December look a good deal weaker but still not disastrous. If unemployment started to rise sharply and income growth slowed. The outlook for consumer spending would deteriorate sharply.
But while the pace of job creation has slowed. Businesses have been unusually cautious about adding employees. Leaving them still quite lean in staffing terms. All analysts agree that policy actions by the Fed. Could make the difference between and recovery.
Latest move to auction loans into the money market and the administration. Sponsored plan to freeze the interest rates on some subprime loans. Almost all analysts for moderate growth. In the per cent range for as a whole. According to Fed data for the third quarter.
Are allowing banks to continue offering mortgages. Preventing a sudden stop in housing finance and. Recapitalising banks and easing their balance sheet strains. If this happens on a large enough scale. Yet even in the most optimistic of plausible scenarios. The US will skirt along the brink of recession for a number of months with very weak growth.
See it as difficult for the economy to grow at only about per cent for any sustained period without stalling and falling into recession.
But all agree that while the US works through a period of very low growth it will be particularly exposed to any additional shocks or an intensification of the existing problems in housing and the financial sector. The story of recessions is that unexpected adverse shocks.
Economic Advisers and a former Fed governor. When is it on and when is it over. The committee is made up of top economists operating of the government and is chaired by Robert Hall. It regards growth in gross domestic product in real terms.
The Bureau of Economic Analysis publishes GDP estimates only quarterly.
The GDP estimates are revised over a number of years. So the Business Cycle Dating Committee uses other metrics as well. In addition it looks at industrial production and wholesale and retail sales. It also weighs estimates of monthly GDP growth by private sector forecasters.
Began in March and ended in November of that year. If the US falls into a sharp or recession this time. If output growth stalls but jobs and incomes continue to grow. Teen charged in bizarre missing dog case. Chicken wings so hot patrons must sign waivers. .