Economists are now reducing their estimates for growth on both a national and regional basis. The Wall Street Journal reported last week that, “a string of downbeat economic reports, including evidence that companies are paring back investment spending and signs that housing is taking another hit, have prompted economists to reduce their forecasts for economic growth in the first half of 2007.”
Today the LA Times reports, “The real estate slowdown will be a major drag on California’s economy this year, but not enough to pull the state into recession, UCLA economists said in their forecast to be released today.” And this is the same conclusion reached by most economists on a national level: despite the woes in the real estate/finance sector, the economy will not dip into recession.
With foreclosures skyrocketing in California it is hard to imagine the state won’t experience a recession. San Diego defaults are up 300% in the first two months of 2007 and it isn’t even in the state’s top 10 worst counties!
Nationally foreclosures were up 42% in 2006 to 1.2 million. That’s over a million families losing their homes and still growing! I’d love to hear the evidence that suggests we won’t face a recession.
You won’t hear it from Paul Kasriel, Director of Economic Research for Northern Trust. Kasriel points to the Conference Board’s Index of Leading Economic Indicators (a novel way of figuring future economic activity calculated by an institution that’s only been doing it for 90 years or so) which has now dipped into negative territory for the first time since the 2001 recession.
Along with the LEI, Kasriel looks at two other factors to determine whether the country is heading for recession: “a negative spread between the yield on the Treasury 10-year security and the federal funds rate… on a four-quarter moving average basis and a year-over-year contraction in the quarterly average of the CPI-adjusted monetary base.”
According to the author, this Kasriel Recession-Warning Indicator, “has given no false signals in that when it has warned of a recession, there has been one.” Right now, “both the LEI and the KRWI are flashing warning.”
This seems to make a bit more sense than the see-no-evil forecasts being propogated by all the economic comics out there.