Less Recession Risk, With Caution
There are some glimmers of hope, but the economic misery still looks like it will be prolonged. A real jobs uptick in 2015?
Put the recession risk at one chance in four, a welcome improvement over the one-in-three of the past few months. The Credit Suisse six-month recession probability model recently eased to 24%, down from September's peak of 36%, driven by the happier combination of lower initial jobless claims, firmer stock prices and improved consumer expectations, as measured by the index tracked by the University of Michigan.
Similarly, the November consensus of 50 forecasters, released Thursday by Blue Chip Economic Indicators, put the recession risk by the end of 2012 at 27.5%, down from early September's 33.4%.
The prospect of recession in the euro zone can hardly be good for the U.S. economy, although ironic benefits include oil prices running lower than otherwise, due to weakened demand. The drag from Europe will come directly from lower exports to that region, and indirectly from lower stock prices, as U.S. multinationals in the S&P 500 get hurt by reduced business in Europe.
But if that's the worst of it, the domestic economy will muddle through. The euro zone, after all, accounts for just 16% of U.S. exports. The wild card is whether the financial problems of European banks seriously harm credit availability in the U.S. That's a definite possibility--which gets us back to the overall recession risk of one-in-four.
MEANWHILE, the Nov. 10 Blue Chip consensus was a bit more optimistic about the near-term outlook for U.S. economic growth.
The recent upside surprise of real GDP growing at an annual rate of 2.5% in the third quarter--the consensus expectation was for 1.9%--augurs well for the current quarter. That's because inventory accumulation slowed to a crawl in the quarter, subtracting 1.1% from overall gross domestic product growth, after adding to GDP expansion in most quarters. Positive contributions from inventory accumulation will boost growth in current and future quarters.
Gross domestic product excluding inventories--called "real final sales"--rose at an annual rate of 3.6% in the third quarter, the fastest pace since the fourth quarter of last year. But even so, the consensus remains cautious.
The consensus now expects 2.3% growth in the current quarter, noticeably higher than last month's projection. But against 2.5% in the third quarter and sluggish gains in the first half, 2011 will be one of the worst years for growth on record. Fourth-quarter real GDP will be just 1.6% higher than fourth-quarter GDP in 2010, nearly half last year's rate of 3.1%.
The consensus expects 2012 to perform midway between this year and last, with fourth-quarter GDP running 2.3% higher than fourth quarter 2011. That rate of growth will barely be enough to lower the unemployment rate. Joblessness is projected to be 8.9% by the fourth quarter of next year, against the current 9.0%.
The 10 most pessimistic forecasters of the 50 believe that growth through 2012 will continue, but not fast enough to prevent the unemployment rate from rising, which they project at 9.4% by the end of next year. The 10 most optimistic do see growth running fast enough to lower the rate of joblessness, to 8.3% by year-end 2012.
Panelists were also asked when they expect the unemployment rate to fall to 7.0% or less on a sustained basis. About 60% thought it would not occur until the first half of 2015 or later.
Comments? E-mail: gepstein@barrons.com
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