Tags: recession

Sinai: U.S. Recession Will Get Worse

Monday, 04 Aug 2008 03:02 PM

The U.S. economy is already wobbling, as evidenced by the paltry 1.9 percent annualized growth rate for the second quarter, and things will only get worse, says Allen Sinai, chief global economist for Decision Economics.

"We're in a recession," the prominent expert said in a recent interview with Bloomberg Television. "It's going to widen and deepen. We're going to have a long period of stagnation well into 2009."

The jump in initial jobless claims to a five-year high of 448,000 in the week ended July 26 constitutes an ominous sign, Sinai maintains.

"The jobs market is getting weaker, it's deteriorating. We're going into the brunt of the troubles in the job market now."

Sinai points out that all the news of corporate layoffs in recent months won't show up in the official statistics until later in the year, when the workers are actually laid off.

"We will see some very bad jobs data," Sinai says, "not necessarily for July, but for subsequent months."

In fact, the nation's unemployment rate climbed to a four-year high of 5.7 percent in July — up from 5.5 percent in June — as employers cut 51,000 jobs.

The weak jobs picture spells doom for the economy, Sinai argues. "Corporate America has to cut back. Consumer demand will be even weaker later on, once we get through the effect of the tax rebates."

Some of the stimulus from the government's rebate checks probably occurred in the second quarter, according to Sinai. "Initially a chunk of money was held back, so we could still see the effect in the third quarter," he says.

"We won't see that rebound fade from the picture until late summer or early fall. But once that does happen, I can't see what will lift consumer spending. The fundamentals are just too negative."

In fact, Sinai believes the economy is already in recession. "Our view has been that the recession began early this year , around January, based on monthly indicators whose levels are below peaks seen late last year and early this year."

In that sense, GDP is a misleading indicator, he says.

"GDP is an anomaly. It's one of the indicators we use to mark recession, but it's up for special reasons. It doesn't really give us a flavor of the economy."

Sinai recommends tax relief for the non-wealthy to boost the sluggish economy. "On the fiscal side, I'd favor starting to cut taxes for middle and low-income families soon as a down payment on permanent tax cuts for that segment of our society," he says.

"We're going to do it anyway, and to finance that we'll just have to raise taxes on high-income families. So we may as well start doing that now."

But Sinai isn't too confident that will happen. "I think Washington is more contemplating a temporary tax cut stimulus," he says.

"We won't be able to do that until late in the fourth quarter, and that's too late to help."

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The U.S. economy is already wobbling, as evidenced by the paltry 1.9 percent annualized growth rate for the second quarter, and things will only get worse, says Allen Sinai, chief global economist for Decision Economics."We're in a recession," the prominent expert said in a...
recession
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2008-02-04
Monday, 04 Aug 2008 03:02 PM
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