Wednesday, October 15, 2008

Yes, we are in a recession

I will go along with the assessment of Janet Yellen, President of the Federal Reserve Bank of San Francisco, that the U.S. economy "appears to be in a recession." A Reuters article by Braden Reddall entitled "Fed's Yellen says U.S. appears to be in recession" also quotes her as saying:

"The outlook for the U.S. economy has weakened noticeably, and inflationary pressures have substantially abated," Yellen said in a speech to the Financial Executives International's Silicon Valley chapter in Palo Alto, California.

"Virtually every major sector of the economy has been hit by the financial shock."

Yellen, who is not a voting member of the interest-rate setting Federal Open Market Committee this year, said the just-ended third quarter probably showed "essentially no growth at all" in the U.S. economy, and that worse lies ahead.

"Growth in the fourth quarter appears to be weaker yet, with an outright contraction quite likely," she added.

There are technical issues with the technical definition of recession, but there is more than enough weakness on enough fronts, including employment, industrial production, and retail sales, that waiting for a clear signal on the GDP and real income fronts is rather moot, especially since the turmoil in the banking and credit sector is virtually assured to cause a major dip in most sectors of the economy for much of this month and possibly well into November depending on the pace of deployment of stimulus into the banking system.

For now, it is abundantly clear that the U.S. economy is currently in a recession, although I suspect that the worst will be behind us by the end of the year, if not sooner. There is simply too much stimulus in the pipeline.

-- Jack Krupansky


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