Is a new recession brewing? No, or at least I don’t see the odds as particularly high for a double-dip contraction. Not today, anyway. But the risk isn’t zero. It’s still quite low, or so I estimate, but it may be rising, in part because the deflationary winds are blowing harder these days. But this is economics, and so no one’s really sure what’s coming. That doesn’t stop anyone from making forecasts, of course. And if there was ever a moment for keeping an open mind, this is it. Here’s a sampling of recent commentary on what the economic pundits are saying about the business cycle, pro and con…
…the case for a second dip still seems pretty overwhelming to me. I take comfort in the knowledge that I tend to have a pessimistic bias, and in the fact that sophisticated quantitative models are generally putting the odds of a second dip quite low. On the other hand, successfully forecasting recessions has not been a strong point of quantitative models.
—Andy Harless, chief economist, Atlantic Asset Management
The Chances of a “Double-Dip” are Essentially Nil…
Early in the recovery many forecasters, concerned that the nascent expansion was fueled only by temporary inventory dynamics and short-lived fiscal stimulus, fretted over the possibility of a double-dip recession. Now, with the emergence of the sovereign debt crisis in Europe, that concern has re-surfaced. Certainly we recognize that the debt crisis imparts some downside risk to our baseline forecast for GDP growth. However, based on current, high-frequency data — most of which is financial in nature and so is not subject to revision — we believe the chance of a double-dip recession is small.
One way we assess these odds is with a simple but empirically useful “recession probability model” in which the probability of experiencing a recession month within the coming year is a weighted sum of the probability that the economy already is in recession and the probability that a recession will begin within a year. The former probability is estimated as a function of the term slope of interest rates, stock prices, payroll employment, personal income, and industrial production. The latter is estimated as a function of the term slope, stock prices, credit spreads, bank lending conditions, oil prices, and the unemployment rate. Currently this model, updated through May’s data, estimates that the probability of another recession month occurring within the coming year is zero.
I wish I could believe in this Macroeconomic Advisers claim that there is a zero chance of a double-dip recession. But when they say that this probability “is estimated as a function of the term slope of interest rates, stock prices, payroll employment, personal income, and industrial production” I immediately lose all confidence. When short-term interest rates are up against the zero lower bound, a positive term spread tells you nothing…
–Paul Krugman, NY Times
The U.S. economy is slowly healing and will avoid a relapse into recession, the American Bankers Association’s economic advisory committee said on Wednesday.
The US economics team at financial firm Morgan Stanley says in their latest research report that recent gains in the nation’s economy point to a remote chance of a so-called double dip — where recent upticks in economic activity are only temporary — citing low mortgage rates as a key driver in drawing this conclusion.