Wednesday, January 30, 2008

How Recessed Can We Be?

Excluding aircraft, durable goods orders rose by 2.6% in December. While the YE 2007 totals are flat, the December numbers don’t indicate that the sky if about to fall (well, excluding certain spy satellites). Joblesss claims have been trending down for the past month.

Unemployment did take a 0.3 increase to 5.0% in December, but 5.0% isn’t in itself a recession by historical standards.

Consumer confidence is also down. More than anything, consumer confidence is likely to be driven by the drumbeat of negative economic stories in the media, and the real estate revaluation process. People’s confidence and spending patterns are correlated with their perceived wealth, and for most of middle class America, that means the perceived value of their home.

The International Monetary Fund (IMF) does not forecast a US recession in 2008.

Personal income stats are due out on January 31st.

Part of the issue is the variable definition applied to the term ‘recession’. Most economists define a recession as two consecutive quarters of Gross Domestic Product (GDP) decline. Most of the press seems to define recession as anything that doesn’t meet their expectations under a Republican administration. Most politicians define a recession as not enough income for whatever group they are currently addressing.

Update: GDP news out today – essentially, not much positive news (real growth +0.6% ) for the quarter. Given the core inflation news in the same report, there’s some risk of mini-stagflation, and the Fed finds its options constrained.

This is probably enough to get the “stimulus” package rolling again, effective or not.

Update II: Fed whacks another 25 basis points off of the Federal Funds rate. Can’t say that Ben and the boys aren’t trying; we’ll pay for this bout of inflation later.