Tuesday, June 26, 2007

Points of View on Whether or Not the US is Headed for a Recession

The article in yesterday’s WSJ reminds me of an article on the same subject from the IMF about 7 years ago.

Basically, the mainstream forecasting groups (Goldman Sachs, Morgan Stanley, etc.) have relatively rosy forecasts for the US economy. Opposed to this are a number of forecasting groups outside the mainstream who think a recession has already started or starting before the end of the year.

The article from the IMF basically states that there is no advantage to forecasting something different from the “pack”, hence the poor forecasting record for recessions.

The question behind all of this is – are you willing to go along with the consensus, which you know is flawed for a variety of reasons. Or are you willing to put in the time to develop your own point of view and live with the consequences.

By the way, concerning the current situation in the US, Market Watch reports the IMF is optimistic about US growth going forward, but they believe that the US faces some risks to that outcome.

From yesterday's WSJ article:

Talk to just about any economic forecaster on Wall Street, and you'll probably get a relatively upbeat assessment of U.S. economic outlook. They'll tell you that business investment and manufacturing output are bouncing back and that housing might be less of a drag on growth, trends that suggest the worst of the slowdown is behind us.

But outside the mainstream -- and, in most cases, far away from Wall Street -- a small but vocal group of pessimists says the consensus view is wrong and that the economy is getting weaker -- so weak that it could actually be in a recession right now. . . .

Mr. Smith doesn't rely on the yield curve alone; he also collects anecdotal evidence from "real people," like business managers, analysts and workers at companies all over the U.S. He said that before he updates his monthly forecasts he speaks with nearly 100 people: "The steel experts and the shipping experts and the truck experts and the agricultural experts -- you name it," he said. Right now, he says, the real people are telling him that business is slowing. "Demand has gone down for railroad, trucking and air freight -- all three. All housing companies are down. Packaging demand is down -- nobody knows why -- you can't buy more if you're not selling more boxes."

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