Despite a recent spate of uplifting economic indicators, the U.S. economy will slide into a recession in 2012 and likely spend most of the year in it, says investor and author A. Gary Shilling.
While the country is showing some signs of improvement, decades of debt continue to weigh on the overall economy, which will need another year of de-leveraging before growth and normalcy can return.
Despite recent stronger economic data, the United States is likely to fall into a recession that will spread globally. The reason? "The U.S. has too much debt — and reducing it hurts growth," Shilling writes in a Christian Science Monitor column.
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In the past, recessions often set in when the Federal Reserve raised interest rates to prevent the economy from overheating.
This time it's different.
"After three decades of U.S. consumers and financial institutions globally taking on more debt, they're now reducing debt – but it's a multiyear process and far from finished," Shilling writes.
"U.S. and European governments are also under pressure to cut debt after incurring huge deficits in the 2007-09 Great Recession. As a result, I expect slow economic growth and high unemployment to persist in the U.S. and Europe."
It won't take much to trigger the return to economic contraction in the U.S., as a drop in housing or shockwaves from the European debt crisis could trigger the slide back downward.
Plus there is nothing really the Federal Reserve and Chairman Ben Bernanke, the government or even consumers themselves can do to stop it.
|Fed Chairman Ben Bernanke
(Associated Press photo)
The good news, however, is the recession just around the corner won't be as bad as the one from a couple of years ago, known widely as the Great Recession.
"This won't be another Great Recession. I'm forecasting a 2.2 percent peak-to-trough decline in real GDP that lasts for a year (versus the 18-month 5.1 percent plunge in the Great Recession)," Shilling writes.
Europe won't be so lucky.
"Europe's recession may be deeper with the financial crisis there and the region's real economic decline reinforcing each other. Combining economic downturns in Europe and the U.S. with a hard landing in China means that a global recession next year is also likely, before the stage is set for a weak U.S. and global recovery in 2013."
Some say the U.S. might not enter a recession because it never fully recovered from the last downturn.
"One of the reasons that I don't think the risks of a recession is extraordinarily high is that the parts of the economy that normally push us into a recession such as housing, automobile sales and business inventories; they're all actually still quite depressed," says Greg Ip, U.S. economics editor of the Economist magazine.
"They never actually recovered much from their recessionary levels."
Even though the U.S. officially recovered from the Great Recession in 2009, high unemployment rates make it feel like things never improved at all for many across the country.
In December, the Bureau of Labor Statistics reported that the unemployment rate fell to 8.6 percent in November from 9.0 percent in October.
While an improvement, jobless rates are still well above pre-recession levels.
An Associated Press survey of economists in December finds that the country will create 177,000 jobs a month through Election Day 2012, up from an average 132,000 jobs a month so far in 2011.
However, hiring is not going to be strong enough to absorb new workers entering the labor force in line with population growth on top of those who lost their jobs in the Great Recession.
So expect a weak labor market for next year even if the world dodges unforeseen events from abroad like a European meltdown or uprisings similar to the Arab Spring.
"I just don’t know if it’s going to be enough to bring the unemployment rate down," says Chad Moutray, chief economist for the National Association of Manufacturers, according to the Associated Press.
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