Is the U.S. entering a conventional, or unconventional, recession?

Filed under: Forecasts, Economic data, Housing, Recession

As economists and stock reviewers will vouch, analysis can vary depending one’s prism, or perspective — i.e. how one views the economic world.

Look at the 2008 U.S. economy one way, and you see the onset of a conventional recession. Five or so years of GDP growth, earnings growth, investment, resource / commodity / raw material utilization, and consumption have basically run their course, and a pause is due. It’s a period of lower earnings, less investment, lower consumption, and we call these pauses recessions.

Look at the 2008 U.S. economy another way and you see a different picture. Five or so years of GDP growth, earnings growth, but also substantial asset price inflation - - primarily in residential real estate - - combined with only modest improvement in the U.S. trade deficit, federal budget deficit, national savings rate, and a substantial weakening of the U.S. dollar. Then, a period of slower growth ensues, a slowdown made all the more onerous by the appearance of a credit crunch that began when the real estate balloon began to deflate, if not burst.

Economist Glen Langan has pondered whether the United States’ condition in 2008 is mirrors Japan’s in 1986-1993. Langan argues the U.S.’s current condition differs considerably because, although each experienced asset price inflation prior to economic slowdowns, the U.S. economy is vastly more complex and flexible than Japan’s of two decades ago. Further, although both the U.S. and Japan face an expanding retiree population, the U.S.’s larger population growth makes it better equipped, from a workforce carrying capacity standpoint, to pay for those higher retirement benefit/medical costs, he said.

In addition, Langan said as in the norm for the U.S. economy as it enters this stage of an economic cycle, the focus has turned to the U.S. consumer. The attention is warranted, he said, given that the U.S. consumer accounts for 58%-67% of U.S. GDP, depending on the methodology used. But whether the consumer has the capacity to continue to serve as an engine of economic growth remains an unresolved question in economists’ circles, he added. Still, unresolved issue or not, differing analytical prisms or not, the U.S. consumer will have to make an appearance again, he said, for U.S. economic growth to resume.

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What’s your take on the U.S. economy? From your perspective, is the U.S. economy worse than it seems? Or is the U.S. economy just in a temporary, slow-motion phase? Let us know what you think.

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This entry was posted on Tuesday, April 1st, 2008 at 8:12 pm and is filed under Real Estate and Housing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.