Is there actually a recession in the United States. People around the world have been arguing over the issue for months. But one thing is certain: people believe that there is one or that one is imminent, and according to this wide-ranging analysis by Thomas Fricke, Chief Economics Editor at the Financial Times Deutschland, ‘For U.S. presidential candidate Hillary Clinton, it’s enough to know that people somehow feel that there is a recession.’
By Thomas Fricke
Translated By James Jacobson and Ulf Behncke
January 8, 2009
Germany – Financial Times Deutschland – Original Article (German)
Is it coming? Or isn’t it? The question of whether there is a U.S. recession moves markets as well as election battles. It seems the answer is mainly one of definition: According to a popular rule-of-thumb, the economy must contract for at least two straight quarters to qualify for the title recession. For U.S. presidential candidate Hillary Clinton, it’s enough to know that people somehow feel that there is a recession.
Sure, this is an election campaign. The more important question, however, may be what a recession means – and whether this heralds a major crisis rather than just feelings of discomfort. Over recent decades, there have been almost as many economic downturns as there have been election campaigns. It’s probably all the same to us if Hillary senses a recession. But a long-term recession like the one Japan has experienced would be a global disaster. Here’s an attempt at an explanation …
POTENTIAL FOR A MINI-CONTRACTION
What is certain is that U.S. economic growth has slowed considerably. It wouldn’t take much for “mini-growth” to turn into a “mini-contraction.” It is however equally remarkable just how many recent economic indicators and corporate results have turned out to be anything but poor.
Despite a crash in their “economic outlook,” service providers remained unimpressed by recession panic in January and announced increased growth. While banks have reported billions in losses, MAN [one of Gemany’s most prominent engineering firms and manufacturers ] is reporting record earnings and U.S. companies have increase their purchases; all during a time of increased productivity, which is unusual for a recession. And at last count, the unemployed rate is no longer at five percent, but once again below it.
Apparently, banks are hesitant to extend credit, but 85 percent of companies surveyed say they are having no trouble obtaining money. So what’s going on?
One explanation could be that the big slide is still to come. It could be, however, that there is something else behind the confusing indicators. Some suggest that the 2006 real estate crash and the 2007 financial crisis came at a time when the U.S. economy was anything but ripe for an economic downturn. Fortunately! When measured against growth in net value, companies have reduced their debt load since 2000 – to about the levels seen at the end of the 1980s – and profits since 2002 have almost tripled, which is a huge cushion.
At the same time, outside of real estate and the financial world, there was little indication of a slowdown in any classical sense. Unlike during the New-Economy-frenzy [the shift from manufacturing to services in the 1990s], U.S. businesses have neither invested too much in equipment nor excessively in human resources. Just the opposite: capital expenditures rose at below average rates. There wasn’t a trace of over-investment. The same holds true for unemployment. The same holds true for unemployment. And up to now, there has been no spiral of prices or wages followed by a drastic increase in Central Bank interest rates, which has triggered past recessions.
This is apart from the fact that at a time of financial shock, U.S. exporters have already profited from the wonderful gift of a now-30 percent devaluation in the dollar, which means a spectacular improvement in price competitiveness.
All this may explain why companies, despite the financial panic, are greatly increasing investment, even if this isn’t necessarily enough to prevent the U.S. economy from one or two quarters of contraction. Even the fittest boxer wavers when he absorbs too many blows – when in addition to shocks to finance and real estate has come an oil shock, too.
READ THE REST AT WORLDMEETS.US, along with continuing foreign press new coverage of the U.S. elections
Founder and Managing Editor of Worldmeets.US