Economist John Hussman: Global Recession on Horizon

Tuesday, 10 Jan 2012 01:10 PM

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Economist and fund manager John Hussman says a global economic downturn is due almost immediately.

"Frankly, I'll be surprised if the U.S. gets through the first quarter without a downturn," Hussman writes in a note to investors.

Three basic issues are at play, says Hussman: Analysts aren't making distinctions between leading, coincident and lagging data; there is little effort to measure the predictive strength of a given economic data; and analysts seem to be forming expectations report-by-report, which Hussman calls a "stream of anecdotes" approach.

Hussman says he can understand the view that the economy is improving in the sense that the data points are correct.

After all, economic data has come in above expectations for several weeks, the Chinese, European and U.S. Purchasing Managers Indices (PMIs) have all ticked higher in the latest reports, new unemployment claims have declined, and December payrolls grew by 200,000.

“Unfortunately, in all of these cases, the inference being drawn from these data points is not supported by the data set of economic evidence that is presently available, which is instead historically associated with a much more difficult outcome,” says Hussman.

"Specifically, the data set continues to imply a nearly immediate global economic downturn."

“We respect the various marginal improvements in the data in recent months, which do take the probability to less than 100 percent, but that is a far cry from suggesting that recession risk is anywhere close to being ‘off the table.’”

But not all experts agree with Hussman.

David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc., said the U.S. economy faces more challenges in 2012 than last year, while he backed away from his prediction the nation was facing a near-certain recession.

“Certainly, we’re not in a recession right now,” Rosenberg said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu.

Nonetheless, he said, “I still believe the economy is still fragile and this recovery is still quite spotty.”

Meanwhile, Reuters columnist Martin Hutchinson says the U.S. recovery is no longer jobless – only homeless. Despite the 200,000 jobs added last month and another drop in unemployment, job creation is still slower than in recent recoveries.

“The 1.6 million overall figure for jobs added in 2011—combining 1.9 million new jobs in the private sector and cuts in government—lags even the relatively feeble recovery of the early 2000s,” says Hutchinson.

“In 2004, for instance, over 2 million jobs were created. Approaching 3 million were added in 1993, and even more than that in 1983.”

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