Warning Signs Of A Global Recession
Signs of a global recession seem to be everywhere. The economy of the eurozone is struggling, and the economies of Portugal, Ireland, Italy, Greece and Spain have been in the frying pan for some time. Many countries credit ratings have been being downgraded. Bank runs in Greece and elsewhere are being seen and a credit freeze for the eurozone has been speculated. At the same time the economies of China, India and Brazil are starting to sputter in this global recession.
One look at the economic numbers will set off red flags no matter which end of the political spectrum one resides.
Job growth in the U.S. has been on the decline for three months. Household wealth has taken a beating from the housing breakdown and has declined around 40 percent in the last three years measured. Consumers are reducing revolving credit and adopting a more cautious approach to their financial life, which has the effect on the economy of a cascading downward spiral. In the area of GDP we have a sickly 1.9 percent for the first quarter. Add to this that most top economists are revising their second-quarter estimates down to 2 percent or less.
The crucial point here is that 2 percent growth is not a recovery. Many refer to it as a growth recession and when the percentage is that low, the economy is that much more vulnerable to financial shocks and hiccups, stumbling even further. Any unpleasant economic surprise from Europe or any unforeseen incident could drop us even further in the hole.
Let us not forget that Lakshman Achuthan of the Economic Cycle Research Institute has, since September of last year, maintained that the United States was tipping into recession. He also notes that there is a danger of increasing recurrent global recessions.
Another influence on the economy in the U.S. is a nearly 10 percent jump in the exchange rate of the dollar in respect to the euro. This has a deflationary impact on the economy and causes both our import and export prices to turn down. This would not be so bad if it were accompanied with lower taxes. With a stronger dollar there are more stable prices and lower taxes provide growth incentive for businesses.
Retail sales and factory orders have already been falling for two months.
In a sign the factory’s feebleness could persist into June, the New York Federal Reserve Bank’s “Empire State” index dropped to 2.3, a 15-point drop from the previous month and the lowest level since November 2011.
“That is another indication that the U.S. economy is slowing,” declared Justin Hoogendoorn, a fixed income strategist at BMO Capital Markets in Chicago. “It’s an ugly situation.”
So the evidence keeps adding up in this global recession.