Capital Economics put it perfectly on Friday. “The debate is over,” and, “the US recession of 2008 finally started in February.”Why all this woe – the latest figures on US employment were released, and they were bad. In fact, in February, no less than 101,000 jobs were lost from the private sector. Be grateful for the government, because at least payroll numbers increased by 38,000 in the public sector in the month taking the overall drop in non-farm payrolls to 63,000.Paul Ashworth, Senior US Economist at Capital Economics, put it this way, “The 63,000 decline in non-farm payrolls in February is near conclusive proof that the economy is now in recession. Payroll gains in the preceding two months were also revised down by a total of 46,000.” Of late, bad news on the economy seems to have been just about the biggest export from the US. The US consumer confidence index produced by the Conference Board fell off the edge of a cliff in February, falling to 75, the lowest level in 5 years. To put that score in context, last July the index stood at 111.
Recently, the closely-watched Standard Poor’s Case-Shiller index recorded a 5 per cent fall in US house prices in the final quarter of 2007 alone. For the year, it had prices down by 9 per cent, by far the biggest fall ever recorded by the index – which, by the way, goes back to 1987. Funnily enough, however, returning to the payroll data, although the performance in February, and indeed January, was awful – it has actually been a good 12 months for US payrolls, and US unemployment still only stands at a modest 4.8 per cent. But then, that’s the trouble with growing economies. It’s growth that matters. To put this in a UK context, British High Street spending, for example, is actually very impressive – it’s just no longer growing at the rate we were used to – and this is what is causing problems.
But assuming Capital Economics is right, and the latest data proves the US is now in recession – this begs the question, what have the likes of the Fed, US Treasury and IMF been on about? Indeed, during the last few days, that great economist of our times, George Dubya Bush has denied the US is in recession.The truth is that the projections on economic growth that we are supposed to trust, have, or so it appears, been wildly optimistic.
Then there’s the markets. The Dow is now down to its lowest level in 16 months, it’s 9 per cent down on the start-of-the-year position and 16 per cent down on the all-time high set last autumn. But the real question that we should be asking is, why did the markets rise so high in the first place? It was obvious for all of last year that 2008 was going to be tough for the US, and yet, the Dow Jones set all-time records with tedious regularity for much of the year. Even as recently as the beginning of February, the Dow was around 900 points higher than Friday’s close. It seems that forecasters and traders alike should be asking themselves some serious questions – and for Joe Public, remember, much of economics is common sense – don’t let the experts bamboozle you with arguments that go against reason.
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