Cited: Reuters/The Economist

recessionOn August 9, San Francisco Federal Reserve Bank researchers said there is a good chance that the economy will slip back into a recession sometime in the next 2 years, but it is unlikely to happen in the next few months. That means that over the next 8 teen-24 months the probability of another recession is higher than that of expansion according to the researchers in the latest issue of the regional Fed banks Economic Letter.

Concern has risen in recent months that the United States might be headed for a ‘double-dip’ recession as measures of consumer spending and confidence have dropped and private company hiring has fallen short of expectations.

The soft economic data will be top of mind tomorrow when members of the Fed’s monetary policy-setting committee meet. Recent comments from Fed officials signal strong disagreement over whether the Fed — the U.S. central bank — should move to offer further support to the economy than it already has.

The researchers — Travis Berge, a graduate student at the University of California, Davis, and Oscar Jorda, a professor there as well as a visiting scholar at the San Francisco Fed — used leading economic indicators to try to predict the possibility of a renewed economic downturn.

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The experiment yielded vastly different results, depending on which indicators were used. But overall, they said, the numbers “indicate that the macroeconomic outlook is likely to deteriorate progressively starting sometime next summer.”

“Of course, economic policy can strongly influence the outcome,” the researchers said. “The policies that are adopted today could play a decisive role in shaping the pace of growth.”

Any forecast 24 months into the future is very uncertain. At two years out, the odds of recession vary from almost three times more likely than expansion, to expansion being almost five times more likely than recession, depending on which LEI components are used. Nevertheless, LEI forecast trends indicate that the macroeconomic outlook is likely to deteriorate progressively starting sometime next summer, even if the data suggest that a renewed recession is unlikely over the next several months. Of course, economic policy can strongly influence the outcome. The policies that are adopted today could play a decisive role in shaping the pace of growth.

This is the “animal spirits” aspect of business activity. An economy is the product of billions of aggregated decisions, and all those decisions are made based on beliefs about what everyone else is going to do. And the recursive nature of this process means that multiple equilibria are possible. And the goal of policy is to keep the economy out of bad equilibrium. And what much of that comes down to is expectations management.

The double-dip question is do we believe policymakers can manage expectations in a way to keep the likelihood of a recession return and low level? If you have a sick feeling in your stomach when you hear this question, you are not alone.

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My Take: I would like to know who said we were out of recession! There are still too many people without jobs, too many people losing their homes to foreclosure and prices are still going sky-high. The ones who can tell this the most are the smokers. Thanks to so much legislation and taxes people who smoke really can’t afford it anymore. Some still manage to purchase their cigarettes and pay their bills. Others find it difficult and resort to other methods. That other method is the electronic cigarette. Electronic cigarettes are not only cheaper, they are better for your health because they don’t have any of the carcinogens.

Of course, the FDA has reserved their opinion until further testing can be done. In the meantime, smokers breathe easier, in more ways than one, because of the E-Cig or e cigarette, as it is sometimes called. It would be nice if there were alternatives for other things that people need that were cheaper.

It is really bad when you’ve noticed that parents are unable to get the formal dresses for their daughter’s prom date for the tuxedos for their son’s prom date. It’s even worse when a father can afford to buy his daughter’s bridesmaid’s dresses. Things are better start changing quick printers might be another revolution in this country.

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