More economists are talking about the dangers of the US hitting recession, and yet the latest news was shrugged off by market analysis that could have come straight from the Mickey Mouse School of Economics.
There’s no sign that the slowdown in US house prices has effected the rest of the economy, say exuberant traders. “So let’s buy”. Yesterday the Dow Jones Industrial 500 closed within four points of an all time high.
And yet, the latest economic data revealed the US economy slowed far more than had previously been thought in the second quarter, dropping from an annualised rate of 5.6 percent in Q1 to a mere 2.6 percent. This was 0.3 percentage points down from the previous estimate last month.
With oil down in price - even though it’s still at levels that would have made headlines two years ago, they say the US will bounce back, thanks to cheaper fuel making everyone feel better off, and inflationary pressures easing to boot.
But, we question whether this is so. On the CNN Money site this morning, Mark Zandi, chief economist for Moody’s Economy.com, was quoted as saying: “Today I would put recession odds at 1 in 4. A month ago, it was 1 in 5. A year ago, 1 in 10.”
It will take time to see what impact the recent slowdown in the US house market will have on the rest of the economy. It will take time to see whether the Fed’s run of continuously upping the interest rate has worked, or whether inflationary pressures still exist. We are not so sure the recent falls in oil will make that much difference.
It begs the question: why are US markets booming? In the past, recessions have been preceded by falls in the stock market. We wonder whether the irrational exuberance that Alan Greenspan used to talk about in the heyday of the dot com boom has returned.
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