Wednesday, August 31, 2011

Ruh-roh: Economy sliding into recession?

That's what Tyler Durden at Zero Hedge is saying.

On Friday, the government revised its Gross Domestic Product figures downward from 1.3 percent to 1 percent for the second quarter. Further, GDP has dropped 1.5 percent year-over-year, which for the past 63 years has indicated a recession is coming. Here's Durden's argument in GeekSpeak:
...the most important event (Friday) from an economic standpoint was the first GDP revision Q2, which dropped from preliminary 1.3% to a sub stall speed, in real terms, 1.0%. What is just as important is that as the following chart from Bloomberg demonstrates, the YoY change in real GDP, which is now at 1.5%, is a slam dunk indicator of recession: "Since 1948, every time the four-quarter change has fallen below 2 percent, the economy has entered a recession. It’s hard to argue against an indicator with such a long history of accuracy."
Durden further argues that the unemployment rate will rise. Other economists -- Martin Wolf and Nourel Roubini to name a few -- are equally gloomy. Here's Roubini on what we should do:
We certainly need another fiscal stimulus. Much stronger than the one we had before. The one we had before was not enough. Congress is controlled by the Republicans and they’re going to vote against Obama in the realm of fiscal austerity. If things get worse, it’s only to their political benefit.
[The American Recovery and Reinvestment Act of 2009] was effective in the sense that the recession could have turned into a Great Depression. Things would have been much worse without it, so it was very effective in the sense of preventing a Great Depression, but it was not significant enough. With millions of unemployed construction workers, we need a trillion dollar, five-year program just for infrastructure, but it’s not politically feasible and that’s why there will be a fiscal drag and we will have a recession.