The Coming Recession

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We can stop wonderin' when its gonna hit - it's here now...

Recession is here - economists
February 5 2008: A weak report about the services sector has caused some experts to declare that the economy has already entered downturn.

A growing number of top economists believe that the U.S. economy has now toppled into recession. Alarm bells were set off Tuesday by a grim report on service businesses, which make up the majority of the U.S. economy. The Institute of Supply Management said that activity in the service sector declined for the first time in nearly five years. This report also indicated that employers are cutting staff.

The survey covers the retail, transportation and health care industries as well as hard hit areas such as finance, real estate and construction. Some economists argued that the normally low-profile ISM services reading, coupled with the government's report Friday showing the first monthly net loss in jobs in more than four years, is proof that recession is now a reality.

"My forecast had been that the recession would begin this quarter, but the hard data wasn't there yet," said Keith Hembre, chief economist of First American Funds. "But now we're seeing that. The service sector is a much larger component of the economy [than manufacturing] and this is very much a recession reading." The National Bureau of Economic Research is the official arbiter of whether the economy has entered recession. But the NBER typically does not declare a recession until well after one has begun.

Weakness spreading

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U.S. recession could be worse than recent downturns
Tue Feb 5, 2008 WASHINGTON - The chances of the United States avoiding a recession appear to be growing dimmer by the day, and any contraction in the economy will likely last longer and be more severe than other downturns in the past 20 years.

Recent reports have shown the housing market slump and rising defaults in the mortgage market are now taking their toll on job growth and on the manufacturing and services sector. But heavy consumer debt, a growing federal budget gap, and rising prices could make any recession worse than Americans have experienced over the past two decades. "If we do go into recession, it's going to be more severe and long-lasting than the last one," said Jeffrey Frankel, a Harvard professor and member of the private-sector panel that dates U.S. recessions.

The nation's last two recessions, in 1990-1991 and 2001, each lasted for just eight months. But the two downturns that ended in 1975 and 1982, when economic conditions bore some similarities to today, each lasted 16 months, making them the longest recessions since the Great Depression of the 1930s, according to the National Bureau of Economic Research, the accepted arbiter of U.S. recessions.

The U.S. economy entered the recessions of 1975 and 1982 saddled with huge government budget deficits from spending on social programs and the Vietnam war, and was suffering double-digit consumer price inflation.

More U.S. recession could be worse than recent downturns | Special Coverage | Reuters

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An end to rate cuts?...

Fed wrestles with growth and inflation worries
Wed Feb 6, `08 - Federal Reserve officials on Wednesday expressed concern about a possible U.S. recession but warned that the central bank cannot let down its guard when it comes to fighting inflation.

"Right now, we're concerned about growth," Richmond Federal Reserve Bank President Jeffrey Lacker told students and faculty at Marshall University's Lewis College of Business in Huntington, West Virginia. While inflation risks have risen over the past six to eight weeks, the economy will manage to grow at a sluggish rate of about 0.5 percent in the first half of the year, Lacker said. Since September, the Fed has cut benchmark interest rates by 2.25 percentage points to 3 percent to help the economy weather a deep housing slump and a global credit crunch.

Philadelphia Fed President Charles Plosser said in a speech to the Rotary Club of Birmingham, Alabama, the Fed's aggressive rate cuts will help the economy to return to trend growth of around 2.7 percent by 2009, though he predicted sluggish growth in the first half of 2008. He did not forecast a recession but told reporters after his speech that "if something can tip us into recession, the housing market is the biggest risk."

The stock market fell late on Wednesday as the comments by the Fed policy-makers cast doubt on the outlook for more interest rate cuts. The Dow Jones industrial average closed down nearly 65 points. U.S. government debt prices also fell. Both men said slower growth does not mean the Fed can take its eye of the ball when it comes to inflation. "We cannot be confident that a slow-growing economy in early 2008 will by itself reduce inflation," Plosser said.

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Looks like a repeat of 1929...

World equity markets lose $5.2 trillion in January
February 8 2008: Emerging markets fell 12.44%, while developed markets lost 7.83%, one of the worst ever starts to a new year, S&P reports.

World equity markets lost $5.2 trillion in the month of January, taking back previous market gains and leaving developed markets in the red for the trailing three months, said Standard & Poor's Emerging markets fell 12.44% in January, while developed markets lost 7.83%, according to S&P, making it one of the worst-ever starts to a new year. "Even though the U.S. is not the only locomotive on this train, we are the largest one, and if we're having difficulty, it's a world difficulty," said Howard Silverblatt, Senior Index Analyst at Standard & Poor's.

"Whether we are in a recession or not, we're acting like we are," Silverblatt added. "When the U.S. consumer starts pulling back, it's going to affect everyone." But world governments are doing what they can to control the situation. "Central banks have been quick to intervene with cash in fusions as well as rate reductions and we're entering more difficult times," said Silverblatt. "

While Moroccan markets gained 10.17% and Jordan's rose 3.11%, worldwide emerging equity markets posted an average loss of 12.44% in January, S&P reported. Turkey saw some of the worst market losses, down 22.70% for the month, followed by China, which was down 21.40%; Russia, down 16.12% and India, down 16%, S&P said.

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Granny says her Halliburton an' pagoda stocks still doin' okay...

Poll: Most Americans believe U.S. is in recession
Feb. 10, 2008 WASHINGTON - Sixty-one percent of respondents agree this is the first one since 2001

Empty homes and for-sale signs clutter neighborhoods. Layoffs are on the rise. Paychecks and retirement investments are taking a hit. Could the U.S. be in recession? Sixty-one percent of the public believes the economy is now suffering through its first recession since 2001, according to an Associated Press-Ipsos poll.

The fallout from a depressed housing market and a credit crunch nearly caused the economy to stall in the final three months of last year. Some experts, like the majority of people questioned in the poll, say the economy actually may be shrinking now. The worry is that consumers and businesses will hunker down further and pull back spending, sending the economy into a tailspin. "Absolutely, we're in a recession," said Hilda Sanchez, 44, of Waterford, California.

Squeezed by high energy and food bills, "we can't afford the things that we normally buy," she said. "We are cutting corners in our spending. For our groceries, we are buying a lot of generic and we are eating out less." For many, the meltdown in the housing and mortgage markets has proved especially disturbing. Record numbers of people were forced from their homes, unable to afford the monthly loan payments. People watched their single biggest asset fall in value, a reason to tighten the belt.

More Poll: Most of public believes U.S. is in recession - Stocks & economy - MSNBC.com

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World could see US$400 billion in subprime losses
Sunday 10th February, 2008 - According to Group of Seven (G7) estimates, financial institutions around the world face US$400 billion write-offs as a consequence of the US subprime mortgage crisis.

German Finance Minister Peer Steinbrueck has said the U.S property market crisis that spread to global financial markets will continue well into 2008.

He was speaking at the Financial Stability Forum in Tokyo, an international group of market regulators attached to G7.

He said banks should provide full disclosure of losses from loans, including write-offs related to U.S credit card financing and car loans.

The G7 is trying to limit the damage from a housing slump that has pushed the US to the brink of a recession.

World could see US$400 billion in subprime losses

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Fearless W says it ain't as bad as it looks...

Bush Says US Economy Healthy, But Stimulus Needed
11 February 2008 - President Bush says the fundamentals of the U.S. economy are strong, but admits the nation is currently in a period of economic uncertainty.

The president says the $152 billion stimulus package of tax rebates and business incentives will keep the economy strong. "I'm looking forward to signing it," he said. "It's going to help deal with the uncertainties in this economy." Mr. Bush spoke as he signed off on his annual economic report to Congress - a Washington tradition much like the State of the Union Address and the submission of his yearly budget proposal. "This report indicates that our economy is structurally sound for the long term, and that we're dealing with uncertainties in the short term," he said.

In the report, the president calls on Congress to take further action to strengthen the economy. He urges lawmakers to make the tax cuts enacted in his first term permanent, and to do more to help struggling homeowners. The document, which was put together by the president's team of economic advisers, predicts modest economic growth this year - 2.7 percent - and a slightly higher three percent growth rate next year. These are more optimistic figures than those put forward by private sector economists. And hanging over all this, is the fear among the consuming public that the U.S. economy could be headed for a recession.

Edward Lazear - the president's chief economic adviser - says the stimulus package, combined with aggressive action on interest rates by the U.S. central bank, will be enough to keep the economy from a sustained downturn. "We believe that the stimulus package that was voted on last week will be quite effective in ensuring against these downside risks," he said. "And we think they will keep the economy from slipping into lower levels of growth." Lazear also points to increased U.S. exports as a big economic plus.

"Net exports shifted from reducing GDP growth [growth in the national output of goods and services] to being a significant contributor in 2007," he said. "In large part this resulted from growth in the economies of our trading partners, from our own productivity growth and from changes in the terms of trade." Lazear says the Bush White House remains committed to open trade. The administration is currently pushing for congressional approval of pending free trade agreements with Colombia, Panama and South Korea.

VOA News - Bush Says US Economy Healthy, But Stimulus Needed

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Fearless W givin' the mortgage crisis the ol' one-two punch...

Bush Unveils Homeowner Help Plan
Tuesday, February 12, 2008 (WASHINGTON) — Homeowners threatened with foreclosure would in some instances get a 30-day reprieve under a new initiative the Bush administration announced Tuesday.

Dubbed "Project Lifeline," the new program will be available to people who have taken out all types of mortgages, not just the high-cost subprime loans that have been the focus on previous relief efforts. The program was put together by six of the nation's largest financial institutions, which service almost 50 percent of the nation's mortgages.

These lenders say they will contact homeowners who are 90 or more days overdue on their monthly mortgage payments. They will be given the opportunity to put the foreclosure process on pause for 30 days while the lenders try to work out a way to make the mortgage more affordable to the homeowner. "Project Lifeline is a valuable response, literally a lifeline, for people on the brink of the final steps in foreclosure," Housing and Urban Development Secretary Alphonso Jackson, said at a joint news conference with Treasury Secretary Henry Paulson.

He said the goal was to provide a temporary pause in the foreclosure process "long enough to find a way out" by allowing homeowners and lenders to negotiate a more affordable mortgage. Paulson said that the new effort was just one of a number of approaches the administration was pursuing with the mortgage industry to deal with the country's worst housing slump in more than two decades.

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Consumer Confidence Already in Recession...

Economic Anguish: Consumers Run for Cover
Feb. 12, 2008 - Americans Seem to Have Lost Faith in the Economy, and That Usually Signals Recession

Foreclosures are up. Job growth has flatlined. And the stock market has taken investors on a wild roller roaster ride. So are we going through a rough patch or has a recession arrived? Economists are split on the issue, but it appears that everyday Americans are clearly feeling the pinch and have lost confidence in the economy.

A weekly consumer confidence poll by ABC News showed the second-steepest fall in its 22-year record. The only other time the index fell this far, this fast was in October 1990 as the 1990-1991 recession gathered steam. Consumer confidence surveys such as the one by ABC News are seen by several economists as an accurate predictor of a recession. The catch is nobody agrees on when exactly that recession starts, if at all. Most economists are still split on whether recent, discouraging economic data necessarily mean a recession is unfolding.

"The difference between a weak economy and a recession is a loss of confidence," said Mark Zandi, chief economist and co-founder of Moody's Economy.com Inc. "When consumers lose faith in the economy they pull back on their spending, inducing businesses to cut back on jobs, which further undermines confidence. It's a self-reaffirming negative cycle that characterizes a recession."

Zandi said that generally when there is a sharp decline in confidence, it signals recession. So are we in a recession now? "I think the economy is contracting," Zandi said. "I think all the dynamics suggest it will continue to contract and there will be a recession, but that is still a forecast."

More ABC News: Consumer Confidence Already in Recession

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Insight into the recession...

How bad will the economy get?
February 13 2008: Fortune managing editor Andy Serwer spoke extensively with Lawrence Summers, Harvard University professor who served as Treasury Secretary under Bill Clinton.

(Fortune Magazine) -- Fortune: How bad do you think the economy will get?

Summers: The plausible possibilities range from a substantial slowdown that feels like a recession to the most serious recession we've seen since 1982. The most likely case is somewhere in between, with a recession whose main brunt is felt this year but that has aftereffects.

What should Washington be doing that it hasn't done?

There are four areas. First, macroeconomic policy to stimulate demand. I'm encouraged by the fiscal and monetary policies that are underway. The second is concrete actions to address the housing sector. The key issue is finding ways to write down mortgages on houses whose values have fallen substantially, without imposing large losses from foreclosures. Third, we need to repair the financial system, which will require a program to assure there's more capital and transparency about valuations. If we try to get price discovery by dumping assets on the market, we'll get fire-sale prices that would trigger cascading liquidations. Fourth, we need more cooperation to assure consistent valuation of assets between the U.S. and the rest of the world and to assure that as demand falls in the U.S., others work to take up the slack.

What do you think of the candidates' economic plans?

The Republicans have missed the point. Our problem today is a shortage of demand; this is not the time for future supply-side measures. Yet the Republican candidates come back to the old standby of making the Bush tax cuts permanent. The stimulus plans put forward by Democratic candidates have emphasized a fiscal approach that would be timely, temporary, and targeted.

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Bernanke Says Economic Outlook is Worse...

Bernanke: Economy Has 'Deteriorated'
WASHINGTON Feb 14, 2008 - The Federal Reserve Chairman Says the Fed is Prepared to Cut Interest Rates Again; Federal Reserve chairman says the nation's business prospects have deteriorated.

Federal Reserve Chairman Ben Bernanke told Congress Thursday that the country's economic outlook has deteriorated and signaled that the central bank is ready to keep on lowering a key interest rate -- as needed -- to shore things up. In remarks to the Senate Banking Committee, Bernanke said the one-two punch of the housing and credit crises has greatly strained the economy. Hiring has slowed and people are likely to tighten their belts further, as they are pinched by high energy prices and watch the value of their single biggest asset -- their homes -- weaken, he warned.

"The outlook for the economy has worsened in recent months, and the downside risks to growth have increased," Bernanke said. "To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so." Bernanke also said that the "virtual shutdown" of the market for subprime mortgages -- given to people with blemished credit histories or low incomes -- and a reluctance by skittish lenders to make "jumbo" home loans exceeding $417,000 have aggravated problems in the housing market. Unsold homes have piled up and foreclosures have climbed to record highs.

"Further cuts in homebuilding and in related activities are likely," Bernanke cautioned. Given all the dangers facing the economy, the Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," he said, indicating additional rate cuts were likely. Still, he was hopeful the economic growth would pick up later this year. Bernanke appeared with Treasury Secretary Henry Paulson and Christopher Cox, chairman of the Security and Exchange Commission, amid increasing concerns that the economy may be drifting into recession.

More ABC News: Bernanke: Economy Has 'Deteriorated'

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Stocks tumble after testimony
Thurs., Feb. 14, 2008 - Fed chairman predicts the economy will grow at ‘sluggish’ pace

Wall Street retreated Thursday after Federal Reserve Chairman Ben Bernanke predicted a “sluggish” economy until later in the year and more mortgage-related losses at banks. The Dow Jones industrial average fell 175 points. Though the Fed chairman’s comments suggested the central bank is still open to further interest rate reductions, the tone was, as expected, somber. Bernanke said the housing and credit crises have weighed on the economy and curbed hiring. If the job market deteriorates, consumer spending, which is crucial for economic growth, will keep dwindling.

The Labor Department said Thursday the number of workers filing unemployment claims fell 9,000 to 348,000 last week. But after the January jobs report that showed the first net jobs loss in more than four years, Wall Street remains worried that businesses are becoming cautious about hiring and that unemployment will compound the debt problems that have been slamming the markets and the greater economy. After three strong days on Wall Street, investors found scant encouragement in Bernanke’s testimony and cashed in their gains.

“He was more bearish on the economy than he was before,” said Arthur Hogan, chief market analyst at Jefferies & Co. After this week’s better-than-expected report on January retail sales, investors found Bernanke’s assessment of the economy particularly disheartening. “To have the Fed come in and talk about how things could be getting worse, not better, kind of takes the wind out of their sails,” Hogan said. According to preliminary calculations, the Dow Jones industrial average fell 175.26, or 1.40 percent, to 12,376.98.

More Stocks close lower after Bernanke testimony - Stocks & economy - MSNBC.com

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Greenspan's Valentine...

Greenspan says US 'on the edge' of recession
Thu Feb 14, 2008 - Former U.S. Federal Reserve Chairman Alan Greenspan on Thursday said the U.S. economy is "clearly on the edge" of a recession.

Greenspan said the economy will continue to erode until there is a stabilization of U.S. housing prices. "We have a long way to go" before housing prices hit a bottom, Greenspan told energy executives at the CERA conference.

High oil prices are dragging on the economy, but the fact that they haven't done more damage shows its resiliency. "It's a burden now," Greenspan said. He added that it's "quite remarkable" that the U.S. economy is "able to do reasonably well" with oil prices near historic highs.

Crude oil futures hit above $95 a barrel on Thursday and went above $100 in early January. Greenspan again -- as he had last month -- said that the likelihood of the U.S. economy going into recession was "50 percent or better."

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Mortgage servicers next victim of housing crisis
Thu Feb 14, 2008 - The halcyon days of the U.S. housing boom were a veritable gravy train for companies in the business of collecting monthly mortgage payments from homeowners.

All these so-called "mortgage servicers" had to do was process the monthly cash stream from borrowers, who generally paid on time, and forward the money to mortgage security investors, pocketing a percentage of each loan they handled. It was a highly automated, low-overhead and very profitable enterprise. But the U.S. housing boom of the past few years has turned into the worst real estate slump since the Great Depression, and mortgage defaults by home owners now threaten to turn this former backwater of the $10 trillion mortgage market into the next victim of the credit crunch of the past year.

What's more, mortgage servicers are so ill-equipped to handle the deluge of defaults that they may be worsening the housing crisis and pushing the U.S. economy closer to recession. Servicing home loans once meant the low overhead task of overseeing monthly mortgage payments and passing the money onto investors. In the aftermath of the subprime mortgage meltdown it now involves the much more costly and people-intensive job of helping Americans save their homes, one by one, by easing payments on unaffordable mortgages.

Tighter credit conditions and falling home values have also dried up the supply of new business for servicers. "If they are not careful, servicers may be the next in line" to follow dozens of failed mortgage lenders, said Rick Smith, chief executive officer of Marix Servicing LLC in Phoenix, Arizona. "They are not getting more loans, but need twice as many people. How long can you operate at a negative cost of service?"

More Mortgage servicers next victim of housing crisis | Special Coverage | Reuters

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Car Repos Soar as Owners Default on Loans...

Beware the Tow Truck: Repo Lots Overflow With Cars
Feb. 15, 2008 - Car Repossessions Head for a Record High as More Owners Default on Loans

Car and truck repossessions this year are headed for the highest level in at least a decade, thanks to easy credit and a faltering economy, says an economist for one of the largest wholesale auto auction services. So many vehicles are being snatched from owners who stop making payments that some repo operators and auto auctioneers say lots are overflowing.

This year's predicted 10% rise in vehicle repos to 1.6 million would be a third higher than 10 years ago, says Thomas Webb, chief economist for a unit of Atlanta-based Manheim, which sells cars to dealers worldwide. The increase comes atop a 10% rise in repos last year. Webb blames overly "generous" auto loans in the past couple of years as a key factor in driving up defaults that lead to repossessions. He says the rate might be even higher if employment hadn't remained strong despite the slowing economy.

An executive at another big auto auctioneer says that easy subprime car loans in recent years are a big reason for the flood of repossessed cars. "We're experiencing significant growth in repo volume to the point where we're using additional lots to store them," says Tom Kontos, executive vice president of Indiana-based Adesa Auctions. "Our inventories are growing to record levels," caused by repos on top of a glut of cars coming off leases and out of rental service. While the nation has been transfixed by rising home foreclosures, scant attention has been paid to what is usually a consumer's second-largest purchase: their car or truck.

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US consumer confidence plummets
Friday, 15 February 2008, Confidence among US consumers has fallen to a 16-year low, a closely watched survey claims.

The University of Michigan index of consumer sentiment fell to 69.6 in February, from 78.4 in January. The report said the index had only been this low during past recessions. Its findings come a day after Federal Reserve chairman Ben Bernanke warned that the outlook for the US economy in 2008 is deteriorating.

The Fed cut interest rates twice in January in an attempt to boost both consumer sentiment and the wider economy, both of which have been dragged down by the collapse in the US housing market.

'Just horrible'

Ian Shepherdson, chief US economist at High Frequency Economics, said the latest consumer sentiment data was "just horrible". "It's another recession-type reading" - Keith Hembre, chief economist at FAF Advisors

More BBC NEWS | Business | US consumer confidence plummets