10 Reasons We Are Heading for a Recession
The following 10 reasons give a foundation for why I believe we may be approaching another recession. Words: 903
So says Clayton Reeves in an article* for Seeking Alpha which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Reeves goes on to expand on his reasons as follows:
1. Debt Downgrade
According to a recent article by David Rosenberg, in the last 17 years there have been 9 developed countries downgraded from AAA and in the following year the median decrease in GDP was 2.5% – with a recession following…
2. No One to Consume
With the United States…looking…towards budgetary responsibility, there… [will be a reduction in] U.S. consumptive demand [which is needed] to spur the world economy out of its funk. With decreased government spending and withdrawal of stimulus, the U.S. cannot create enough consumption to pull the world out of economic hardship…
3. Worldwide Debt Levels
More and more countries have levered up over the last ten years and now that debt is becoming more difficult to carry. This burden, most pointedly, has impacted Japan, PIIGS countries in Europe, the United States and now … China. China has been pursuing progress without heed for expense… With China now carrying 60-90% of GDP as debt, it could be time for them to slow things down [which would] only lead to more tepid global growth.
4. Deep Rooted Euro Issues
The eurozone, despite a hastily arranged bail out of Greece, still displays foundation cracks that threaten to bring the entire arrangement crashing down. Centuries old cultural and societal strife continue to plague a union that needs unity now more than ever. If one or more of the other troubled nations finds themselves in a sticky situation, will the European Union be able to arrange more bail outs? It seems difficult to imagine that there is much remaining goodwill in Germany and France to do so.
5. Real Estate Market Sluggishness
The real estate market received a boost [in July with an increase in] pending sales… however, for this to truly mean anything, those pending sales will have to become existing sales. With cancellations increasing, the pending number has not been as reliable a leading indicator of existing sales as in the past. If there are a slew of cancellations this month, expect the existing number to disappoint.
6. Lack of Jobs
The job market recovery, or lack thereof, will continue to be a political bane for Obama and a hindrance to any continued recovery. With weekly jobless claims giving only dim hope for the unemployed, any sort of negative news may cause that number to spike.
7. Worldwide Austerity
Austerity continues to be a road that many nations are forced to travel. The burden of debt has prompted this, and the results will prove to be detrimental to overall growth. These are the pains necessary to restore balance and sustainability to the world economy as a whole, but they will not be without their hardships on developed and emerging economies alike.
8. Sentiment Declines
Indexes of consumer spending unexpectedly hit a lull in May as prices increased and caused households to cut back. Some view this decline as temporary, with decreasing commodity prices to set the stage for the second half of the year. If inflation rises, then the GDP may remain positive, but will be eaten into in real terms.
9. Manufacturing Falters
Numbers for the Institute for Supply Management fell last month to 54.5 from 55.3. This reading still indicates growth, as does any above 50, but a dip in the next reported number could spell trouble. Additionally, orders for durable goods unexpectedly fell in June. This, coupled with slower than expected increases in inventory could spell trouble for capital spending in the second half of the year. A caveat with durable goods, is that it was largely transportation driven, with other durables showing signs of life.
10. The White House Doesn’t Expect It[Just the other day] White House economic advisor Gene Sperling dismissed fears that the U.S. economy may be headed for another slump. He said he wasn’t worried about any sort of double dip. Taken in context with the rest of the indicators listed here, this is just the sort of contrarian indicator I find compelling.
- Are We On the Verge of a Second Recession? http://www.munknee.com/2011/07/are-we-on-the-verge-of-a-second-recession/
- Take a Look: Economic Stagnation is EVERYWHERE! http://www.munknee.com/2011/06/take-a-look-economic-stagnation-is-everywhere/
- Slip Sliding Away: Signs Point to Ongoing Economic Decline in U.S. http://www.munknee.com/2011/06/many-signs-point-to-ongoing-economic-decline-for-the-u-s/
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
– Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above