A Dartmouth professor warns not only has the United States slipped into a recession that is likely as bad as the 2008 financial meltdown, but that it is getting worse. David Blanchflower of Dartmouth, along with Alex Bryson, of University College London, “says that every slump since the 1980s has been foreshadowed by 10-point drops in consumer indices from the Conference Board and the University of Michigan” reports the Daily Mail.
The two professors authored a research paper released October 7 titled, “The Economics of Walking About and Predicting US Downturns” in which they state the dire prediction. “It seems to us that there is every likelihood that the US is entered recession at the end of 2021.”
In the paper’s ‘Abstract’ it states “the economic situation in 2021 is exceptional, however, since unprecedented direct government intervention in the labor market through furlough-type arrangements has enabled employment rates to recover quickly from the huge downturn in 2020.”
“However, downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now (Autumn 2021) even though employment and wage growth figures suggest otherwise.”
In the introduction, the paper explains that “following the collective failure to predict the Great Recession of 2008 economists have redoubled their efforts to predict economic downturns.” This paper seeks “to see whether it is possible to predict turning points in the United States economy since the late 1970s using qualitative data for the United States from The Conference Board and the University of Michigan on consumer expectations.”
The research paper writes:
We identify four criteria to predict these recessions:
1. Two out of three successive quarters of quarterly GDP growth are negative.
2. There are two successive months of employment declines in the Current Population Survey (CPS) household-level data.
3. The unemployment rate rises 0.3 percentage points in a single month.
4. Either or both the two expectations measures we examine from The Conference Board and the University of Michigan fall by 10 points or more.
So, what is going on? The answer appears to lie in the exceptional nature of the COVID-induced shock to the economy. It has been both an economic shock and a health shock, and one with the potential to derail the economy again over the coming months. It seems likely that, in spite improvements in traditional labor market indicators, declining consumer expectations about the future of the economy are linked to COVID-related fears and anxieties. This is borne out by the survey by The Conference Board discussed above indicating a recent rise in the percent of workers – and especially women – worried about returning to the workplace for fear of contracting COVID- 19, a substantial increase from June 2021 when only 24% expressed this concern…
…We suspect that fears linked to COVID will continue to affect the real economy and lie behind consumer expectations about an imminent downturn in the economic situation. This is a bold call of course, and not consistent with consensus and only time will tell if we are right. However, equivalent falls in these data in 2007 were an early indicator of recession, missed at the time by policymakers and economists. There is a possibility of course, that these data are giving a false steer. However, missing the declines in these variables in 2007, as most policymakers and economists did, proved fatal. It is our hope such mistakes will not be repeated this time around. They missed it last time, hopefully, they won’t miss it this time. These qualitative data trends need to be taken seriously.
Dow Jones Undergoes Losses Not Seen Since Peak Of Great Depression
As Americans brace for a likely recession within the next year, the stock market has undergone losses not seen in decades.
According to The Wall Street Journal, “The Dow industrials are headed toward their eighth straight weekly loss, their longest such streak since 1932, near the height of the Great Depression. The S&P 500 and Nasdaq are on course for their longest streak of weekly losses since 2001, after the dot-com bubble burst.”
Brian Levitt, global market strategist at Invesco, explained that the losses were over worries about a stagnating U.S. economy.
“It’s clear that in a very short period of time, we moved from a pandemic to an inflation scare to now, serious concerns about growth,” Levitt said.
Economists warn that the U.S. economy could face a recession next year, which is defined as having two consecutive quarters of negative GDP growth. Goldman Sachs’ economists estimate that there is a 35% probability of the U.S. entering a recession at some point within the next two years.
“Recession risks are high — uncomfortably high — and rising,” said Mark Zandi, chief economist at Moody’s Analytics. “For the economy to navigate through without suffering a downturn, we need some very deft policymaking from the Fed and a bit of luck.”
“This week alone, former Goldman Sachs chief executive Lloyd Blankfein warned of a ‘very, very high risk’ of recession; Wells Fargo CEO Charlie Scharf said there was ‘no question’ that the U.S. economy is heading toward a downturn; and former Fed chair Ben Bernanke cautioned that the country could be poised for ’stagflation’ — a slowing economy combined with high inflation,” The Washington Post reported.
National Gas Prices Could Hit $6.20 Per Gallon By August
National gas prices could surge to well over $6 per gallon by the end of the summer, according to analysts at JPMorgan.
Natasha Kaneva, head of global oil and commodities research at JPMorgan, wrote in a research document that the United States was going to face a “cruel summer” as gas prices are expected to dwarf their already record highs.
“With expectations of strong driving demand — traditionally, the U.S. summer driving season starts on Memorial Day, which lands this year on May 30, and lasts until Labor Day in early September — U.S. retail price could surge another 37% by August to a $6.20/gallon national average,” she wrote.
“Typically, refiners produce more gasoline ahead of the summer road-trip season, building up inventories,” the analysts said. However, over the last month, “gasoline inventories have fallen counter seasonally and today sit at the lowest seasonal levels since 2019.”
The report comes the same week that the United States set a new record for gas prices with the average cost per gallon rising over $4 per gallon in all 50 states for the first time ever, according to a report from the American Automobile Association (AAA).
“The high cost of oil, the key ingredient in gasoline, is driving these high pump prices for consumers,” said AAA spokesperson Andrew Gross. “Even the annual seasonal demand dip for gasoline during the lull between spring break and Memorial Day, which would normally help lower prices, is having no effect this year.”
As explained in the report, “total domestic gasoline stocks decreased by 3.6 million bbl to 225 million bbl last week. Gasoline demand also decreased slightly from 8.86 million b/d to 8.7 million b/d. Typically, lower demand would put downward pressure on pump prices. However, crude prices remain volatile, and as they surge, pump prices follow suit. Pump prices will likely face upward pressure as oil prices stay above $105 per barrel.”
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