US recession is already here, warns Merrill
By James Quinn, Wall Street CorrespondentLast Updated: 12:05am GMT 08/01/2008
The US has entered its first full-blown economic recession in 16 years, according to investment bank Merrill Lynch.
Merrill, itself one of Wall Street’s biggest casualties of the sub-prime crisis, is the first major bank to declare that a recession in the world’s biggest economy is now underway.
David Rosenberg, the bank’s chief North American economist, argues that a weakening employment picture and declining retail sales signal the economy has tipped into its first month of recession.
Mr Rosenberg, who is well-respected on Wall Street, argues: “According to our analysis, this [recession] isn’t even a forecast any more but is a present day reality.”
His comments are the strongest sign yet that the gloom on Wall Street over the US economy is deepening as the sub-prime mortgage crisis and the credit rout show little sign of easing.
Mr Rosenberg points to a whole batch of negative data to support his analysis, including the four key barometers used by the National Bureau of Economic Research (NEBR) – employment, real personal income, industrial production, and real sales activity in retail and manufacturing.
Mr Rosenberg notes that although the NEBR will be the final arbiter of any recession, such confirmation may be two years away as it typically waits for conclusive evidence including benchmark revisions.
However, he believes that all four of these barometers “seem to have peaked around the November-December period, strongly suggesting that we are actually into the first month of a recession.”
His view is at odds with some other forecasts on Wall Street, with Lehman Brothers going so far as to issue ten reasons why the US economy will not enter into a recession.
Mr Rosenberg argued that “This isn’t about ‘labels.’ What is important about recessions is that while each may have its own set of particular characteristics, there are also unmistakable investment patterns that emerge time and time again.”
His views were cemented by last week’s jobs numbers, which showed the unemployment rate hitting 5pc, an increase of 13pc year-on-year and the highest in two years.
Despite the increasingly weak economic data, Treasury Secretary Henry “Hank” Paulson said the immediate goal of the Bush administration “is to minimize the impact of the US housing downturn on the economy.”
Apparently dismissing calls for immediate tax cuts amid suggestions that President George W Bush might announce a fiscal stimulus package as early as his annual State of the Union address later this month, Mr Paulson said it is more important to get policy right rather than announced policy changes quickly.
He said that no single policy or action would undo the “excesses” of recent years, and urged for patience as the next steps to aid the country’s economy were revaluated.
However he noted that officials within the Bush administration “recognise the risks we face” and will try to keep the economy “as strong as possible as we weather this housing correction.”
The issue of the faltering nature of the US economy continues to play a large part in the race to replace President Bush, with the majority of candidates seeing it as a key battleground.
Ahead of tomorrow’s New Hampshire primary, Democratic contender Hillary Clinton said the US middle class is under increasing economic pressure, as costs rise and house prices wane.