Latest Figures Show Mild Recession Already Here

WASHINGTON, DC-Businesses and consumers wondering whether the US economy is going into recession can stop the debate now. According to analysts at Global Insight, the latest set of economic metrics show the economy is past the tipping point and if it hasn’t already gone into recession it will in the first half of 2008. The only question is whether it will be a mild contraction or a deep one. For now, based on current indicators, it appears as though the recession will be mild and by 2009 housing and construction will be contributing slightly to the economy, instead of dragging it down.

“The economy is reeling from a double shock,” explained Nigel Gault, group managing director for Global Insight’s North American Macro Services, during a web cast this morning. One shock–the initial spark to the current problems– was of course the housing downturn and related credit crunch, which is now broadening into unrelated parts of the economy. The second shock is the ongoing pressure of oil prices that hover close to $100 per barrel.

Most likely, Gault said, there will be small declines in GDP growth for the first two quarters of the year. By the second half of the year, the duel fiscal and monetary policy prescriptions that have been thrown at the credit crunch and economic slowdown will start to be felt. There will likely be a temporary lift, then another drop–after which the economy will be back on the road to conventional growth, Gault concluded.

Brian Bethune, director of Financial Economics for the US Economic Service, who also participated in the web cast, which was entitled “The US Economy: On the Brink”, noted that there are two concentrated risks in the current economy cycle that still need to play out before a true recovery can begin. These risks are to the capitalization of the banking system and the larger general business cycle expansion. The policy prescriptions by the government–particularly the Federal Reserve–appear to be working and it is likely that the Fed will continue to support both fiscal and monetary measures. “We think [Federal Reserve chairman Ben Bernanke] will endorse the concept of fiscal stimulus” because it meets his criteria of being a temporary measure and cost effective, Bethune said.