In this Molecast, author and business/economics journalist Doug Henwood (who publishes Left Business Observer and hosts a weekly radio show on NYC’s WBAI) returns to explain how ‘recession’ is officially demarcated by the National Bureau of Economic Research, and why we are not officially in one at present; he also offers the clearest account of where the US economy seems to stand now–in his own view and that of Wall Street–that I’ve read or heard from anyone since the housing bubble began to deflate last year.
“We may well be in recession or very close to it right now,” Henwood says. “But there’s also another possibility, which is that we’re really talking about a much more structural problem rather than a business cycle issue.”
On his view of the present US economy:
“Probably the most prominent bear on Wall Street is Merrill Lynch’s chief economist, David Rosenberg, who has been offering some pretty gloomy analyses and prognostications for many months now. He declared the other day that he thought we were already in recession. Goldman Sachs was out yesterday with a very similar analysis, that we’re either in or on the verge of recession. Probably the major reason for this is that the employment report for December that came out last Friday was a very poor one. It did show a gain of 18,000 jobs, but if you look under the surface of that number, things were very, very weak. Many important sectors lost jobs. Construction and manufacturing were off very hard. Retail was off… It was either an early recessionary or cusp-of-recession kind of report, and Wall Street took it that way. Then the other AT&T reported a decline in consumer revenues, in part because people were unable to pay their phone and DSL bills and they were getting disconnected. Wall Street actually took that very seriously too. It’s an ominous sign when people can’t afford their phone bills. That suggests some pretty stressed household finances.
“A lot of people on Wall Street are almost rooting for a recession, though. They figure if a recession happens, the Fed is going to be much more aggressive in easing, and Wall Street loves nothing more than declining interest rates.”
“I would also want to add that, yes, we may well be in recession or very close to it right now. But there’s also another possibility, which is that we’re really talking about a much more structural problem rather than a business cycle issue. We had that great bubble that came to an end with the bursting of the dot-com mania. Then we had what was by official standards a pretty mild recession in 2001. There was a very slow recovery in the job market, but the worst of the recession was over in less than year….
“We never really had the kind of economic bust that you might expect following the bursting of the stock market bubble. One important reason for that, besides the Bush tax cuts, was that the housing bubble really kept things going. I think it masked a lot of underlying problems with the economy. With the labor market, we’ve had the slowest growth of jobs and labor market wages and salaries in this expansion of any of the 10 since WWII. It’s a been a very, very skewed expansion period. Profits rose very dramatically from 2001-2005, wages and employment rose very slowly. That suggested there was still some lingering underlying sickness from the bubble and the bust that had not been worked through.
“Now that the artificial stimulus of the housing bubble has been removed, I think maybe some of the underlying weaknesses of the American economy are really coming to the forefront. We just have no manufacturing sector to speak of anymore. We’ve become reliant on a very strange set of economic sectors that drive the economy: retailing; it had been housing, but that’s no longer with us; health care; and bars and restaurants. These have been the major sources of employment growth. I don’t think we can have an economy that’s driven by the health care sector and the food-and-drink sector for very long.”