Wednesday, December 12, 2007

Is A U.S. Recession Looming?

Kathleen Camilli of Camilli Economics was recently quoted in the Wall Street Journal, as seeing “the internal dynamics of the U.S. economy deteriorating into recession" this quarter. "Growth will be negative this quarter, nonfarm payrolls will be revised down, and from what I can see, personal-consumption expenditures are rapidly slowing," she said. "All U.S. consumers, wealthy and middle-class, pull back their spending when their housing investments stop appreciating and start deteriorating in value. This is already under way, and has been exacerbated further by high oil prices." If you believe Camilli, then the U.S. is facing a recession.

However, there are also economists, such as Milton Ezrati, who don’t see a U.S. recession as very likely. He was quoted by Reuters as saying, “[The] subprime [mortgage crisis] in and of itself is not enough to cause recession."

"If it engenders a general fear of taking on credit risk, as it has recently, and engenders a general fear about lending and extension of any kind of loan, then I think that could create a recession," Ezrati said. But he emphasized that he does not consider that a likely scenario.

The Wall Street Journal recently polled 52 economists, who put the chance of a U.S. recession at an average 38 percent. Because there is no level of certainty either way, investors would be wise to cover themselves for either scenario.

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