Tags: Hussman | Recession | us | economy

Economist Hussman: Recession is Almost Here

Tuesday, 30 Aug 2011 08:25 AM

Economist and fund manager John Hussman says historical facts demonstrate that a new recession is a certainty.

“It is now urgent for investors to recognize that the set of economic evidence we observe reflects a unique signature of recessions comprising deterioration in financial and economic measures that is always and only observed during or immediately prior to U.S. recessions,” Hussman writes in a note to investors.

These signals include a widening of credit spreads on corporate debt versus six months prior and the S&P 500 below its level of six months prior.

He said other danger signs include: the Treasury yield curve flatter than 2.5 percent year-over-year, GDP growth below 2 percent, ISM Purchasing Managers Index below 54, year-over-year growth in total nonfarm payrolls below 1 percent, and plunging consumer confidence.

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Hussman says that present evidence has 100 percent sensitivity, meaning that these conditions have always been observed during or just prior to each U.S. recession, and 100 percent specificity, meaning that the only time the full set of these conditions is present is during or just prior to U.S. recessions.

“This doesn't mean that the U.S. economy cannot possibly avoid a recession, but to expect that outcome relies on the hope that ‘this time is different,’" says Hussman.

“The way to get the economy moving again is to restructure hopelessly burdensome debt obligations.”

But not all experts agree a recession is a certainty.

Reuters reports that U.S. consumer spending rose at its fastest pace in five months in July, a further sign the economy isn't falling back into recession.

And the struggling U.S. economy expanded even more slowly than previously thought in the second quarter of 2011, but a breakdown of the growth suggested a new recession could be avoided, Reuters reported.

Gross domestic product rose at an annual rate of 1 percent, the Commerce Department said on Friday, as restocking by businesses and growth in exports proved less strong than initially estimated.

"While confidence indicators have plummeted of late, the most timely hard numbers certainly do not suggest that the economy has fallen back into a recession," Harm Bandholz, chief U.S. economist at UniCredit Research in New York, told Reuters.

"Instead, we still continue to expect that growth in the second half of the year will accelerate to about 2 percent."

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Economist and fund manager John Hussman says historical facts demonstrate that a new recession is a certainty. It is now urgent for investors to recognize that the set of economic evidence we observe reflects a unique signature of recessions comprising deterioration in...
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2011-25-30
Tuesday, 30 Aug 2011 08:25 AM
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