Robert Samuelson considers whether a recession in the “emerging economices” will push the United States into recession, too:
“We’ve had a huge plunge in emerging-market growth,†says Nariman Behravesh, chief economist for the consulting firm IHS. By IHS’s estimates, economic growth in these countries has dropped by about half, from 7.4 percent in 2010 to 3.8 percent in 2015. Some countries have simply lost speed; China declined from 10 percent in 2010 to less than 7 percent this year, according to many estimates. Other countries have suffered recessions. Brazil’s economy, which grew more than 7 percent in 2010, is expected to shrink 3 percent this year.
As a result, prices of raw materials — conspicuously, oil — have dropped sharply. Some global industries have surplus production capacity, and emerging-market imports are well below expectations. The fallout has already affected the U.S. economy. Caterpillar recently announced as many as 10,000 layoffs through 2018, because demand for the company’s earth-moving equipment — heavily used in mining operations — has been soft. And the Federal Reserve recently cited global uncertainty as one reason for not increasing U.S. interest rates.
Still, many economists doubt that the emerging-market debacle will squash the U.S. recovery. “The U.S. consumer and the housing market are big driving forces,†says Behravesh. U.S. exports to emerging-market countries are only about 4 percent of the economy (gross domestic product). Any loss of exports can be overwhelmed by higher consumer spending, which is nearly 70 percent of GDP. And Behravesh thinks consumer spending will remain solid for many reasons: strong job growth (around 200,000 a month); low interest rates (households’ interest payments as a share of disposable income are the lowest since the mid-1980s); and low gasoline prices.
It has been 76 months since the end of the last recession. The longest expansions of the post-war period have been the expansion that ended in December 1969 (106 months), the expansion that ended in July 1990 (92 months), the expansion that ended in March 2001 (120 months), and this one. All of those expansions were significantly more robust than this one has been by nearly every metric and most expansions have been much shorter.
I think the smart money would bet on a recession sooner rather than later. If the Republicans are very, very lucky, it will begin soon. If they’re very, very unlucky, a Republican will be elected president in 2016 and a recession will start in 2017.
Still, many economists doubt that the emerging-market debacle will squash the U.S. recovery.
Because there was no US recovery?
I think it’s possible that globalization has rendered the tools we’ve been using for measuring the growth of the economy less accurate than they once were.
With everybody in on the financialization racket, the old rules do not work. (They never really worked, but in the US, Glass-Steagall, unfree trade, a healthy manufacturing based economy, responsible central bankers, and a few other factors made the rules seem to be working.)
With every country’s balance sheet (money + credit supply) interconnected and intertwined, we are all playing by the rules of unsound money, and those are the rules Ponzi set forth. There will be a few winners, and there will be a lot of losers. In order to determine the winners, you need to follow the credit trail, and the losers are everybody else.
What happens if we have a recession and nobody notices?
I think the story I would tell would be slightly different. There are quite a few factors that aren’t taken into account that affect the results. Among those I’d include remittances, that we import so much of what we consume, and that much of what is not imported that we consume is government-subsidized.
Let’s consider remittances. They amount to at least $130 billion annually (based on World Bank estimates) and are probably considerably higher. How in the heck do you measure them? They should be added to imports to get a more accurate picture of economic activity.
How do you account for black markets? By definition they’re not counted accurately. A half trillion in black market activity would throw a monkeywrench into any attempt at estimating economic activity.
Let’s see… Bill Clinton’s arrival into office was at the end of a recession Most of the economy’s acclaimed growth, occurring after 1997, was aided and abetted by an uncommonly good era of robust technology, augmented by the fiscal policies of a republican congress. When Clinton left office, though, the dot.com boom was fading, ME issues had not been reconciled and this is what was handed over to the next president. Two months into GWB’s first term a recession started, six months later 911 happened — an “inheritance” he was awarded full blame. His term was marked by controversial foreign policy calls, rising debt, and a runaway housing market that spiraled out of control, during the remaining years in office that were under the oversight of a democratic congress. A recession officially started in 12/2007, culminating in the market crash of ”08, whose undertow created havoc in the economy. But fiscal remediation was already underway when Obama took office in January ’09, and by 6/’09 the recession had ended and we were embarked on the so-called “summer of recovery,” with all branches of government safely in democratic control.
Under Obama’s leadership this recovery has languished too long and been far too tepid, hampered by continuing poor policy decisions both domestically and abroad — something this administration keeps saying is their predecessor’s fault IMO, even the current fiscal numbers, denoting a “better” economy is finally blooming, are disputed by what many people are experiencing in their own lives — except for the Bezos, Gates, Zuckerberg, Buffet crowd.
And, now we are nearing the end of Obama’s tenure in office, with what some describe as an illusory economic recovery in tow, a ME exploding, Russia expanding it’s presence, Iran posed to be liberated from it’s economical restrains, opening diplomatic relationships with Cuba who is said to be even more repressive to it’s people and unreal in what it’s demanding our government give them….all of this and more is going to be the mess handed over to the next president. If it’s a dem, they will probably continue to point fingers at GWB, when (not if) a recession starts. If’s it’s a republican, well they can then simply pivot and crucify what a republican is now doing to the economy, rather than couch it in terms of an unfortunate inheritance passed on to someone else, via the Obama Administration.
“Caterpillar recently announced as many as 10,000 layoffs through 2018 . . .”
One thing I learned recently: CAT has cut 31,000 jobs since mid-2012. IOW, the rate of job cuts projected over the next three years is one-third of that over the last three years. It’s cause to celebrate.
Seriously, I don’t know what it means, but it makes me leary of using CAT as a canary in the coal mine. I think margins in mining equipment are relatively large, and CAT has been acquiring mining companies (mostly overseas) and has been stripping out “redundancies.”
I think that dot-com boom is something very much misunderstood and it’s a topic I’ve posted on here from time to time. It had very little to do with anything done by the Clinton Administration. Businesses had been investing heavily in computer technology for about 15 years without having much concrete to show for it. The pieces all came together at once and the dot-com boom was born.
There has been nothing like that since then. Quite to the contrary businesses have been under-investing if anything. So don’t expect a new technology boom any time soon. We just haven’t been doing the spadework.
“I think that dot-com boom is something very much misunderstood and it’s a topic I’ve posted on here from time to time. It had very little to do with anything done by the Clinton Administration.”
I was going to label the dot.com boon as “luck” for the administration in power, as many other economic retrospectives have done. But, usually there is a blast of heat from Clinton fans, for taking any credit away from his years in office. After all he has become the symbol of living in the land of plenty under the rare circumstances involving a balanced budget. Ironically the D’s, though, seem to ignore the pesky happenstance of another rare phenomena — a republican congress (1st time in the House for something like 40 years?)
The bottom line of my earlier opinion is that republicans will somehow land the majority of criticism for the almost certain recession that will soon follow this president’s ideological occupancy of the WH. It’s just an understood theme, in the revolving nature of political parties, as they sweep in and out of office. IMO, though, it’s more instinctive and knee-jerk in the democratic circles. IOW, they are far better at denying any wrong-doing than R’s are.
A few thoughts.
By now people should know that our firm invests almost exclusively in manufacturing companies. That sector is already in recession. Period. See also Fed office manufacturing indexes.
CAT is the largest single customer for one of our companies. It’s been lagging a good two years. Partially mining (commodities) but other sectors as well. It’s not consolidation cuts, just good old fashioned demand.
The problems with GDP measurement are finally getting some airplay. Primarily over smoothing. That would make Q2 overstated, and a smoother growth rate at a 2-2.25-ish rate. So much of that is housing, where mortgage rates have been manipulated to be low, but where the jig may be up, and auto, fueled by subprime loans. One would note that the Atlanta fed gages current growth at 1.25%. The consumer is spending, but more for essentials, it appears. Very modest income growth does not bode well.
I’m with jan. GDP growth has been so anemic that it’s been difficult to get overheated. But just falling below a,say, 2% growth rate will feel like a recession, even if not by traditional metrics. 1.5% growth isn’t going to accelerate employment, incomes or just the general standard of living.
I had a longer comment about money but why bother.
A global recession is not the problem. The problem will be the same as the housing bubble if it initiates a financial collateral call cascade, but with seven years of world-wide ZIRP and QE, there are so many under or uncollateralized credit instruments it is not possible for the little actual collateral to support them.
I do not know how it will all play out, and it is probably unknowable due to the number of moving parts. It may turn out that that all the Europeans are really Greeks, or the US could be the most financially responsible country. China or Russia may have the correct idea.
The world is connected by central bank balance sheets and financial sectors. There is too much money afloat for this system be broken up peacefully. Estimates of the amount of money is in the hundreds of trillions of dollars. Again, nobody understood the connection between housing and investment banks until it was too late.
“Again, nobody understood the connection between housing and investment banks until it was too late.”
…and then we have an “unexpected” crisis unexpectedly roll over us. This is usually the point where the freaked-out public turns to squeaky wheel politicians and big brained bureaucrats (having little on-the-ground experience) equipped with theoretical magic markers, for help.
“where the freaked-out public turns to”
Remember that credit markets were frozen. It was the financial sector also begging for help.
Steve