recession

James Politi

Buoyant US economic data has revived a debate over the shape of the US recovery.

In congressional testimony this week, Ben Bernanke made clear he thought the risks of a “double-dip” recession, while “not negligible”, had fallen in recent months. 

Simone Baribeau

Homeprices resume their fall after recent gains after the tax credit was set to expire.

Ben Bernanke, Federal Reserve chairman, earlier today cited “residential and nonresidential construction” as a headwind to the “moderate” economic recovery. But he also said that consumer spending will be boosted by “a gradual pickup in jobs and earnings, the recovery in household wealth from recent lows, and some improvement in credit availability.”

Household wealth is, of course, comprised of many types of assets, including retirement portfolios and other equity and bond investment holdings. But one of its major components is home values.

So is that portion of household wealth likely to grow? See the somewhat downbeat graph. 

Ralph Atkins

So Germany – alone among the seven richest nations - may see a “double-dip” contraction? That at least is what the Organisation for Economic Cooperation and Development has suggested in its latest forecasts.

Really? The OECD’s forecast of a first quarter contraction seemed odd, especially as it coincided with more good news on German industrial orders. Dispelling fears of a fall, German orders held steady in February, after a whopping 5.1 per cent rise in January, the Berlin economics ministry reported. Business confidence indicators and purchasing managers’ indices have also been strong recently. 

Simone Baribeau

Household debt continued to contract last quarter, falling at an annual rate of 1.25 per cent according to the Federal Reserve’s flow of funds data released today. It’s the seventh consecutive quarterly decline, but its slowest since the fourth quarter of 2008. As has been the case, the falls have been split between home mortgage debt, which fell at an annual rate of 0.75 per cent, significantly slower than the last two quarters, and credit card debt, which fell at 5.75 per cent, significantly faster.

So does this mean that US consumers are buckling down and, despite job losses and declining household wealth, paying down their credit cards?

Probably not, according to a recent credit card debt study from Card Hub. (h/t Felix Salmon

Simone Baribeau

Action Economics said in a research note that it expected the Bank of Canada to begin increasing its main interest rate in July as the labour market continued to recover.

The general uptrend in hiring since last August will leave an upbeat outlook for Canada’s job market and broader economy that underpins expectations for BoC tightening to start in July.

We expect the BoC to hike rates 25 bps in July. The March announcement began to build the case for rate hikes in the second half of this year as the Bank is projected to move rates from currently extraordinary accommodative levels to merely accommodative levels. At the same time, the prominent role of monetary policy in the recovery and continued downside risks to growth and inflation back the maintenance of an 0.25% floor through Q2 of 2010 and a measured approach to second half tightening.

Action Economics predictions on Canadian tightening: 

Calling a turning point is tricky, and offers ample room to make oneself look silly.

But I reckon a good indicator is surprise. If pundits expect the continuation of a trend, and are surprised, that suggests either a temporary blip or a reversal. And if there are many such related surprises, evidence strengthens for the reversal.

Well, there is a lot of surprise in this office at the moment. Every day there seems to be a new (negative) data release for the UK or US – and every day I see colleagues raising eyebrows at the size of that surprise. An eyebrow raise, in Britain, is a powerful indicator.

So I’m keeping a list, below, of the latest data releases. 

Simone Baribeau

Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, today spoke of an ‘impressive’ turn-around in GDP and said that the tide of dismal economic news ‘appears to have turned.’ But there the upbeat message of the a leading dove ended.

The annual 5.7 per cent growth in fourth quarter GDP was unlikely to be sustained, she argued.

Unfortunately, I’m not at all convinced that a V-shaped recovery is in the cards. That fourth-quarter leap in GDP overstates the underlying momentum of the recovery.

The reason for her scepticism in the sustainability of last quarter’s growth was, of course, the same as everyone else’s: most of it was due to a slowdown 

Simone Baribeau

William C Dudley, president of the New York Federal Reserve, gave a particularly non-populist speech today in Puerto Rico. Giving non-populist speeches is, of course, the job of FOMC members: they worry about keeping the economy on track in the long-term, freed from short-term political considerations. But even so, Mr Dudley’s speech was candid.

After speaking at length about the ways in which failures in the US had negatively impacted the Puerto Rican economy, he suggested the US territory make a number of changes to mitigate the damage. Among them:

1. Raise taxes on lower-income workers.

Of course, he’s slightly more politic than that, but only just. 

Simone Baribeau

The Paraguayan central bank today lifted its 2010 GDP estimate to 6 per cent, after having seen its economy shrink by 3.8 per cent in 2009. It’s a huge turnaround (it was expecting just over 4 per cent growth in 2010 before). So big, in fact, that the economy will recover to above its 2008 levels.

And here’s the happy graph - 

Ralph Atkins

The eurozone ride gets a little scarier. Jürgen Stark, European Central Bank executive board member, warned in a speech in Leipzig this morning that growth in the first half of this year would probably be more restrained than in the final six months of 2009. Stark heads the economics department at the ECB, so his projections should be as good as anyone’s. Stark, a former Bundesbank vice president, insisted this did not mean a “double dip” recession, rather it was consistent with a gradual and bumpy (“holprigen”) recovery. But it suggests we could be in for some gloomier economic news in coming months.

More striking – to me at least - were Stark’s comments on economic imbalances within the eurozone. He devoted a large part of his speech (and a few charts) to comparing wage costs and current account deficits/surpluses across the 16-country region.