Recession clouds darken 2007 outlook

Most economists expect slower growth and no downturn, but some recent signals are flashing red. Warning signs are flashing as the chances of a recession have risen significantly. Economists raise the odds from 25% to 35% in just a few months. What is causing this?

The home building sector is already in a recession. This has slowed growth to a crawl and it is not expected to turn around any time soon. At least not until well into next year. It doesn’t seem as though we are at the bottom of the real estate market yet.

Manufacturing could be soon to follow according to recent data. The sector fell into the negative growth category for the first time in 41 months, a clear sign that manufacturing is making the same turn.

Christmas spending has shown up weak. This is certainly not helping our GDP numbers. The gains were the smallest in 4 years.

Finally, we still have a inverted yield curve in which longer term rates are lower than short term rates. While alone it would not cause a recession, with all of these factors involved we need to take this as a significant warning sign.

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