Tags: Achuthan | US | Recession | economy

Achuthan: US Has Already Plunged Back Into Recession

Wednesday, 11 July 2012 12:04 PM

The United States already has fallen back into a recession, says Lakshman Achuthan, co-founder of the Economic Cycle Research Institute.

Last year, Achuthan predicted that the U.S. economy would slide into a fresh economic contraction during the first quarter of this year.

Even though gross domestic product rates are officially growing, the country for all intensive purposes is in economic decline again.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

"What we said back in December was that we thought the most likely start date for the recession would be in Q1, and if not then, by the middle of 2012. I'm here to reaffirm that," Achuthan tells Bloomberg Television.

"In other words, I think we're in recession already. As I said back there, it's very rare that you know you're going into recession when you're going into recession. It often takes some big hit on the top of the head. In the last recession it took Lehman to wake people up. In the recession before it took 9/11."

A recession is officially defined as an economy seeing at least two consecutive quarters of contracting gross domestic product rates.

The U.S. gross domestic product officially expanded 1.9 percent in the first quarter though other indicators point to a deteriorating economy.

"When you look at the data today, you see industrial production is off of its April high. Manufacturing and trade sales – much broader than retail sales – is off of its December high," Achuthan says.

"Real personal income growth, which doesn't always go negative during a recession, has been negative for several months. So, it's consistent with a recession having already started, and GDP – newsflash: the first quarter of a recession very often has positive GDP."

The Economic Cycle Research Institute publishes widely followed economic metrics called the Weekly Leading Indexes, which are forward-looking indicators closely followed by economist and markets.

Officially, the U.S. has skirted above recession and continues to do so.

While the U.S. economy remains in better shape than Europe, parts of which remain mired in recession and debt crises, global uncertainty continues to dampen recovery and keep hiring at bay.

Since the downturn and official recovery in 2009, demand for jobs has remained weak.

The U.S. unemployment rate has hovered over 8 percent for more than three years, yet for seven decades after the Great Depression, the rate averaged 5.4 percent, the Wall Street Journal reports, citing official data.

Job growth has averaged 125,000 new net nonfarm payrolls a month since 2009, when the labor market was at its worst.

At that job pace, unemployment rates won't even dip to 7 percent until around the end of this decade, the Journal reports.

The Labor Department expects the labor force to grow to 164.4 million by 2020 based on long-run population growth and a declining labor force participation rate, mainly due to retiring baby boomers.

"If the current recovery’s pace of household employment growth held on, the jobless rate would fall below 8 percent in 2014, but it would not reach 7.0 percent until late 2019," the Journal finds.

"That means this decade’s jobless rate would be about 7.9 percent, the highest for a decade since the Great Depression, beating out the reigning champ of the 1980s."

Meanwhile, a series of tax hikes and spending cuts will kick in at the same time at the end of this year, a combination known as a fiscal cliff that could siphon hundreds of billions of dollars out of the economy and send the country right back into recession, others say.

"We’re close — the single worst recovery of all time," says economist Arthur B. Laffer, an architect of Ronald Reagan's economic policies, according to CNBC.

"If the tax increases go through to 2013, I think we fall off the cliff, to be very honest with you."

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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Wednesday, 11 July 2012 12:04 PM
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