Wednesday, July 23, 2008

8 Signs the U.S. Economy is NOT Headed Towards a Recession

As I discussed in a blog entry last week, 8 Signs the U.S. Economy is Headed Towards a Recession, dozens of leading economists adamantly claim that we are either headed towards a full fledged recession, or that we are already into the first few months of a recession. Although we can all admit to feeling the pains of a poor economy, saying that we are definitely headed for a recession may be a bit drastic.

As with most economic and financial issues, there is always room for debate. A looming recession is no exception. Dozens of highly educated, well respected, economists still proclaim that we are not headed towards a recession. The majority of their argument is that “yes” the economy is worse than it was a few years ago, but we are still a long way away from a recession.

"My view is that taking all the new data into account, that there is really no material change in our expectations for the U.S. economy since I last reported to Congress a couple weeks ago," claims Federal Reserve Chairman, Ben Bernanke. "If the housing sector begins to stabilize and if some of the inventory corrections that are still going on in manufacturing begin to be completed, there's a reasonable possibility that we'll see some strengthening of the economy sometime during the middle of the year."

So are we headed towards a recession or not? The truth is that no one can give a 100% sure answer. The economy can be sporadic. Moreover, just because we seeing some signs of a looming recession does not mean that the economy will not bounce back in the next few months. The only way to really know for sure, is just to wait and see. In the mean time, enjoy the following list of 8 signs that the U.S. economy is not headed towards a recession.

1. Overall Economic Growth

Although it is more of a technicality, the economy must exhibit negative growth 2 quarters in a row to validate a full-fledged recession. Yet, between January and March of 2008 the economy actually grew at a rate of 0.9%, and the overall growth was at 1.9% for 2007. As such, the economy is not in an actual recession. In addition, no one can claim that we are until there is data to back up the statement.

2. Consumers are Still Spending

Although the numbers have dropped, there are still plenty of people spending their hard earned cash on things they don’t necessarily need. Just look at the millions of people who lined up to buy the new iPhone. Box office sales are also doing well, with major summer hits drawing in crowds, such as “Dark Knight,” the new Batman movie, which is already performing above expectations. Are people just forgetting to be frugal, or do we have a better grip on our cash than we thought?

3. Election Year

The looming election may seem far off, but a change in the White House may make all the difference. Backed by his former competitor Sen. Hillary Clinton, Sen. Barack Obama plans on changing tax codes to better benefit the US economy. Obama has publicly blamed President Bush and contender Sen. John McCain for misleading the public on a looming recession. He argues that he is "the only candidate in this race to propose a genuine middle-class tax cut," and claims the nation needs as president a leader who "doesn't defend lobbyists as part of the system, but sees them as part of the problem."

4. Media Awareness

Possibly due to the popular election coverage this year, more Americans seem to be keeping up with the news. Practically every major news station has covered the possibility of a recession, and viewers have taken notice. An aware public makes a drastic difference in economic affairs, and many will be watching to see what they can do to prevent our economy from failing.

5. Confusing Unemployment Figures

Unemployment rates are misleading. The percentage comes from individuals collecting unemployment from the government for the 2 months they’re allowed. These numbers are unreliable, because there is no real way to tell just how many people have or do not have jobs, and certain factors just are not being added in. Economists also argue that unemployment may be rising, but that more people are seeking out alternative forms of income, such as self-employment or independent contracting. In addition, any studies conducted at this point of the year have to be discounted to account for the influx of high school and collegiate aged individuals seeking work for the summer.

6. Decrease in Abroad Travel = Increase in U.S. Travel

Due to limited spending money, more people are spending their summers and vacations in the States. This is beneficial because the cash they would be spending in Europe is now being fed directly into our economy instead. As more and more families take road trips this summer, the money generated from tourism is likely to help the economy.

7. Isolated Housing Crash

The housing and mortgage crash of recent years is widely considered one of the leading causes of a poor performing U.S. economy. Home sales are continuing to drop, and more and more Americans are facing foreclosure. However, many economists claim that the housing crash is somewhat isolated. Moreover, other sectors of the economy are actually picking up extra slack. Additionally, experts also predict that the housing market will cool off in the next few months, and will help improve the economy overall.

8. Reasonable Inflation Rates

Although there are many signs that point towards a recession, the inflation rate of the U.S. dollar does not. When you look at our “core inflation” – which excludes food and energy prices – it is actually under 2%. Some economists argue that if we were headed to a recession, this number would be much, much higher.

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