The title sounds like an old light beer commercial from the 1970s and 1980s. However, this headline is very fitting because as the economy moves into the pre- and post-election cycle and holiday period, either side of the title could be appropriate.
The official definition of a recession is two consecutive quarters of negative economic growth as measured by gross domestic product (GDP). However, many would say that if your business is retail, housing, airlines or auto, the recession — and in some cases the depression — is alive and well.
Second, one major reason for the recession feeling is that the U.S., and now the globe, is coming off 25 years of growth fueled by appreciating balance sheets, i.e., stock and housing. This created a feel-good factor and spurred growth of the service and consumption based sector.
Key factors to observe in the general economy this fall and winter for the case of a recession are:
HOUSING INVENTORY: Unsold homes remaining high and housing starts, which make up 6-8% of our economy, remaining at the 900,000 annual level. Just as a reminder, at the peak two years ago it was 2.4 million.
OIL PRICE: Prices of over $150/barrel created by weather, a cold winter, hurricane, political and military events, along with strong global demand and low value of the dollar could lead to a recession. This would spill over into the agricultural economy, creating havoc for the livestock sector first and second to the crop enterprises.
UNEMPLOYMENT RATE: The U.S. economy is coming off several months of job loss. Unemployment has increased from 4.5% to 5.7% with a true unemployment rate including discouraged workers of nearly 10%. If the unemployment rate increases this fall and winter from 6% to 9% and rises to 12%, including the discouraged workers, a case could be built for a possible extended, steep recession. One key will be timing, particularly if there is a sharp rise during the holiday period. Higher rates will be observed on the East and West coasts and in Ohio and Michigan than the general Midwest.
CONSUMER SPENDING: Consumers, who drive approximately 70% of the U.S. economy, have gone into hibernation. There appears to be a trend of reprioritizing and revolving consumer decisions particularly on high-end products and services. This consumer spending slowdown is the result of tapped out home equity and credit cards, resulting in liquidity crunch in the household. With 10% of home mortgages having negative equity and up to 17% of subprime loans behind on payments, any additional shock places the “r-word” in the headlines.
Dave Kohl, PhD., Corn & Soybean Digest Trends Editor, is Professor Emeritus at Virginia Tech. He's published four books and over 500 articles on financial and business topics. You can reach him at email@example.com.