Gary Shilling: We are either in or entering a recession
Here’s another Tech Ticker segment on the state of the economy. Noted economic bear Gary Shilling believes the US is in recession or will be entering one shortly. His view is that wages have not grown robustly enough to warrant the level of spending consistent with continued recovery. Indeed, the three consecutive months of declining retail sales are a clear sign of recession in Shilling’s view.
"We’ve had three consecutive months of declines in retail sales," says Shilling, president of A. Shilling & Co., an economic research and forecasting firm. "That’s happened 29 times since they started collecting the data in 1947, and in 27 of the 29 we were either in a recession or within three months of it."
Take a look.
My take: I think the economy is soft and could be in recession soon. I do not think we are in a recession.
At the beginning of the year, I predicted that the economy would soften and that this would favour Romney. Here’s what I wrote (gold members-only post here, short version of my predictions here):
Romney will be elected President: when you look at one-term post World War II US presidents, usually an economic downturn killed them. The sixty Go-Go years were as much a problem for Johnson as Vietnam. Ford and Carter had stagflation and Bush 41 had the first jobless recovery. The Republicans can’t win if the economy holds. Obama has to hope 2012 will be good and I don’t think it will be good enough because he is unlikely to have won over many new voters through his policies but is likely to have lost some through low voter turnout apathy or defection because of his imperial-style anti-civil liberties approach. So this is about Obama and not about Romney. The Republicans cannot win with anyone else unless the economy tanks because the other Republican candidates are too far right of center and will drive up Democratic voter turnout and drive away moderates. Only Romney is moderate enough to win.
Mitt Romney looks less moderate today than he did in January. In my view, that means higher voter turnout on both sides as the contrasts are more striking. Obama had been losing swing voters according to Gallup.
But Romney’s pick of Paul Ryan as his running mate probably makes him look less moderate still – and that means more swing voters for Obama. At this point, Romney needs the economy to tank or high Republican voter turnout to win.
As far as the economy goes, I would be surprised if the NBER’s recession dating committee said the recession had started in Q2 as an increasing number of people are indicating. However, only employment and production are keeping things in recovery mode. Retail sales and wages are not. If retail sales continue to sag, production and employment will be cut and recession will take hold. Perhaps then, the dating committee will go back to when retail sales began to falter – and that is Q2. The next US retail sales number is going to be a very big deal – for the economy and the Presidential election. Now that I am back from vacation, I will be crunching the numbers for Pro subscribers with posts coming out on what the macro numbers tell us about the US economy. Stay tuned.
About Edward Harrison
Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.
