Friday, August 26, 2011

Despite the Market Turbulence, There Will Be No Double-Dip Recession

Aug 23, 2011 7:35 AM, By Victor Calanog, NREI Contributing Columnist
National Real Estate Investor
The tumultuous events of the last four weeks have prompted downward revisions to economic forecasts, and for good reason. On July 29, U.S. GDP growth figures for the second quarter came in at an anemic 1.3%, with first-quarter figures revised down to 0.4%.
Then came the debacle over the debt ceiling debate, and the S&P downgrade. The probability of a double-dip recession has now risen to between 30% and 50% based on consensus estimates, up from a relatively low 15% earlier in the year. 
And yet there is good reason to believe that the economic recovery will continue to putter at an uninspiring pace, but progress nonetheless. Monthly job growth has been positive for 10 straight months since October 2010. Some 930,000 jobs have been created in the first seven months of 2011, about as much as the 940,000 jobs that were created in all of 2010. 
Yes, it is disappointing that projections made early this year calling for 3.5% to 4% annualized GDP growth never materialized, but this is hardly like late 2008. Back then, major institutions were failing and had to be bailed out, and the economy shed hundreds of thousands of jobs beginning in January 2008.
Sentiment is a powerful force
The main problem is not an economy on the ropes, but a weak recovery plagued by institutional gridlock, and changing expectations of whether U.S. policymakers can encourage job creation while managing debt and deficit levels. We are at a critical juncture given the decidedly mixed nature of economic and financial data.
If we lose confidence as individuals and curtail spending quickly, and if businesses lower expectations and pull back on hiring, then we just earned ourselves the kind of low growth and high inflation environment that characterizes periods of stagflation. 
Already we’ve observed ...
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