Have We Averted a Recession?

Economists in WSJ are less sure about a recession then they were just a month ago. Many see Fed's response of cutting rates and fiscal-stimulus checks helping to avert a recession.

Still, Mr. Bryson and other economists note that though two main pillars of the economy, the labor market and consumer spending, have faltered, they have not collapsed as they did in past recessions. On Tuesday, the Commerce Department said retail sales fell a slim 0.2% in April from the previous month -- a decline due mostly to a steep drop in auto sales. Excluding autos, retail sales climbed 0.5%.

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Claims for unemployment benefits -- which typically rise well above 400,000 a week during recessions -- have stayed well below that level, and fell last week. In addition, the economy isn't shedding hundreds of thousands of jobs a month, as it usually does in an economic contraction. In April, employers cut just 20,000 jobs, and the unemployment rate fell.

While the labor markets look strong, remember the BLS data had 267,000 jobs created from the Birth/Death model. In a recession (or near-recession), that sounds too high. Also, instead of cutting jobs, many employers are cutting back on the hours.

As for consumer spending, while you never can count the American consumer out, it finally seems like consumer spending is slowing. More and more consumers seem to be using Credit Cards as a last resort.

To be sure, even economists who are becoming more upbeat say the U.S. may be in for a period of protracted sluggish growth.

If we do avert recession (which I do not believe we will do), then we probably have substituted sluggish growth for a recession.

"I think the problems are just starting," said Lehman Brothers economist Drew Matus, citing high gasoline prices and tightening lending standards, saying that prolonged stagnation can be worse than a recession.

Asked in an interview with The Wall Street Journal whether the U.S. could avoid a recession, Gary Stern, president of the Federal Reserve Bank of Minneapolis, said, "No," adding, "But there are recessions and then there are recessions....The average resident doesn't distinguish between whether the economy is growing half a percent or one and a half percent....It's more, how does this feel?"

And then from a different article, our old friend David Rosenberg...

The U.S. economy is in a recession and stimulus from a government tax rebate later this quarter will only temporarily stem a fall in consumer spending, a Merrill Lynch economist said on Wednesday.

"I still maintain the business cycle is bigger than the government," Merrill's North American economist David Rosenberg said at a client conference in Singapore.

"No asset class security is priced today for a recession scenario," Rosenberg said, which is why he was bullish on U.S. Treasuries but bearish on stocks.

http://online.wsj.com/article/SB121068163716188223.html

http://www.cnbc.com/id/24606689/for/cnbc/