Some think it is a foregone conclusion the economy is in or will be going into a recession within the first two quarters of 2008, but not everyone.
“No, I don't think we’re going to hit recession, but it’s going to feel like it,” Welch said “Things are slowing down dramatically, as everyone knows. But I think we’ll weather this thing and the global economy will keep us alive. So, we will not have a technical recession, but it will sure as hell feel like one.”
The “technical definition” of a recession is a period of general economic decline; specifically, negative growth in gross domestic product (GDP) for two or more consecutive quarters.
For the last two quarters, GDP (as reported by the U.S. Commerce Department) has grown at a rate of 3.8 percent (second quarter of 2007) and 4.9 percent (third quarter) – not a sign of a recessionary trend. Fourth-quarter GDP numbers for 2007 won't be released until March.
Robert Stein and Brian Wesbury, economists for First Trust Advisors, L.P., wrote in their January 14 “Monday Morning Outlook” the dismal view of the economy is unwarranted if one examines the underlying fundamentals.
“We can’t change the mood on Wall Street,” Stein and Wesbury wrote. “What we can do is look at the fundamental drivers of the economy. And those drivers appear in good shape.”
The “drivers” Stein and Wesbury were referring to included the fact that Federal Reserve interest rates are not “tight,” historically speaking – despite the pleas for cuts from some financial media pundits. They also wrote tax rates remain low and the losses from the subprime mortgage woes are now realized. They wrote the dollar amounts from the subprime crisis “pale in comparison to an economy that will produce $14.5 trillion in GDP this year, has 300 million people, 100+ million homes, and more than $100 trillion in total assets.”
However, they said, the skittishness on Wall Street is self-perpetuating.
“Market fears are driven by two inter-related issues,” Stein and Wesbury wrote. “First, there is an implicit assumption that credit market problems will continue to worsen. Second, many investors have become convinced a serious economic slowdown is underway. Worst of all, these issues aggravate each other, increasing fears of a downward spiral.”