SEATTLE - Don't rely on the "scorekeepers" to announce in a timely manner when the U.S. economy officially is hit by a recession.
That was the message from economist Jeff Thredgold, who told credit unions at a meeting here a recession started last November and will encompass all of 2008.
"This is a recession that is long in duration but shallow in depth," he said. "Realistically, we are not going to know for sure until early next year, because the scorekeepers operate with significant lag time."
As an example, Thredgold pointed out the economy has not suffered a single quarter of negative growth during the current downturn-until last month, when the government revised GDP growth in the fourth quarter of 2007 to -0.2% from 0.6%.
Traditionally, the definition of a recession is two consecutive quarters of negative GDP growth. "Economists today are dealing with the 'R' word, but it is 'Revision' not 'Recession,'" Thredgold quipped.
A look at history shows the economy's current woes are not a cause for panic, Thredgold continued. He said in 1987, a 22% drop in the U.S. stock market caused many to declare the onset of a second Great Depression. In 1997, the Asian market crisis prompted similar Chicken Little proclamations.
"The current crisis has brought a tremendous markdown in securities worldwide," he told the NASCUS meeting. "There have been $500 billion in losses. But, we will get through this, and 10 years from now we'll deal with something else."
While unemployment of 5.7% is a four-year high, Thredgold reminded the audience in the early 1980s unemployment was in excess of 10%. Similarly, he said the Consumer Price Index being up a crude-oil-driven 5.6% in the most recent index does not mean inflation will eat up America's wealth.
"I expect a 4% rise [in CPI] this year, and for inflation to stay under control," he predicted. "There is one-third excess capacity in every industry in the world. That, plus competition, will help keep prices under control. Consumers are bold and aggressive about negotiating prices, and they get information from the Internet. Workers are more productive than in previous years, and the Internet reduces" businesses' costs.
Thredgold's best guess for interest rates: the Federal Funds Rate will stay at 2% though 2008 and into the second quarter of 2009. And he added, "There is not going to be a global recession," he added. (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com/ http://www.sourcemedia.com/
