John Berry Is More Optimistic than Many
John Berry writes:
Bloomberg.com: Opinion: Some analysts were predicting a recession would hit the U.S. economy in the fourth quarter as consumers, hurt by falling house prices and the high cost of gasoline, cut spending. It didn't happen, and there's no reason to think it's going to this year either....
Given the turmoil in financial markets, the risk of a recession is hardly zero. Nevertheless, the current state of the economy simply doesn't show the signs usually associated with one....
"Expansion peaks tend to be characterized by overhangs in inventories, too many employees and excess capital stock relative to output," [Mickey] Levy said. None of those conditions exists in the U.S. economy and the Fed has eased to the point that rates are "now consistent with sustained growth in demand," he said.
Many of the forecasts calling for a recession are based on an assumption that large losses associated with subprime mortgages and the securities backed by them will force banks to reduce lending big time. The resulting credit crunch will undermine business investment and consumer spending, the forecasters say. There are scant signs of that happening... the National Federation of Independent Business.... "Only three percent of the owners cited the cost and availability of credit as their number one business problem."...
Instead of a slump in consumer spending and the beginning of a recession, households increased their outlays at a 2.5 percent annual rate in the fourth quarter, possibly more, according to estimates by a number of economists. On Dec. 26, Macroeconomic Advisers said consumer spending probably rose at a 2.8 percent rate.... The gross domestic product probably increased at a 1.1 percent pace in the fourth quarter and will do slightly better in the first quarter, the firm said...
