This is old news for anyone who follows markets and economics and thinks for themselves, but it’s interesting that the mainstream media is finally starting to understand. See the following article from CBS MarketWatch. As a sidenote, a rally attempt should appear soon, after the swift fall from recent market highs. Cheers!
Goodbye, expansion; hello, recession
Commentary: Signs are everywhere, particularly in the plight of the consumer
By Dr. Irwin Kellner, MarketWatch
Last Update: 11:29 PM ET Nov 12, 2007
PORT WASHINGTON, N.Y. (MarketWatch) — No matter where you look, signs of a recession are beginning to proliferate. Indeed, it’s getting more and more difficult to come up with reasons to expect this aging expansion to continue.
One reason for concern is the age of the expansion itself.
November marks the sixth birthday of the current upswing. This makes it a senior citizen by business cycle standards, since it is now 20 months older than the average postwar peacetime expansion.
Indeed, only four of the previous 32 business cycles tracked by the umpire of the business cycle, the National Bureau of Economic Research, lasted longer than this one – and two of these occurred during wartime.
History aside, there are any number of reasons to be cautious about the economic outlook today. Chief among these is the plight of the consumer, the mainstay of our economy.
For one thing, people’s cost of living is soaring. Most households are suffering from a vicious combination of higher food and energy prices and the skyrocketing cost of health care.
Consumers’ buying power has failed to keep pace with the rising cost of these essentials – and this includes the past year, when job creation was strong and the unemployment rate dipped to as low as 4.4%.
However, by October of this year, there were fewer people at work (as measured by the household survey) and only a jump in the number of people leaving the labor force kept the jobless rate steady at 4.7%.
To make matters worse, the value of people’s two biggest assets, their homes and their investments, are falling. Many households have little or no savings to fall back on, having spent more than they have earned for at least the past two years.
As for borrowing, forget about it! The credit squeeze has made banks increasingly wary of lending money – not just to consumers, but to businesses as well.
As I pointed out last week, the credit squeeze is slowly but surely choking off the flow of funds to those who are accustomed to borrowing as part of their daily activities. See column
If people and business can’t get the funds they need, they will reduce their outlays. As it is, there is anecdotal information suggesting that people are starting to curtail such nonessential activities as eating out, buying luxury goods and travel.
For its part, the holiday shopping season looks to be the worst in at least a dozen years See Oct. 1 column
It will not take long for these cutbacks to ripple out to other parts of the economy, which are already feeling the effects of the sharp decline in homebuilding.
Besides the obvious impact on suppliers of building materials, jobs having anything to do with real estate, from construction, to brokers, to lenders, are beginning to dry up.
These developments have not escaped the financial markets – witness the recent skein of stock market declines.
Rightly or wrongly, the markets believe that more rate cuts from the Federal Reserve are needed to help keep the economy from slipping into a recession.
And no matter what the Fed might want to do, at the end of the day, the markets will have their way. End of Story
Irwin Kellner is chief economist for MarketWatch and for North Fork Bank.
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