Are we in recession? Yes and no.
That’s the answer offered by Wells Fargo economist Michael Swanson. He was speaking to a business group on June 17 in Rochester.
Swanson said the answer to the recession question is a matter of perspective. “A recession is two consecutive quarters of GDP contraction, and it doesn’t look as if we are going to have that,” Swanson explained. “But are we in a recession when it comes to real estate? Absolutely. … In the economy today, we are definitely going through a very tough spot for a lot of sectors but at the same time we are barely eking out growth in the economy.
“Debt markets and housing are holding back the economy,” Swanson said. “But there are some things that are going fantastically well. If you are in the energy exploration or extraction business; the mining business, or agriculture right now, you have fantastic results in front of you. It has been staggering the amount of export growth some of the companies have had.”
Swanson said the outlook for the remainder of the year is “very weak.” Growth will be driven primarily by trade expansion due to growing global demand and a weak dollar.
Although unemployment is at about 5.5 percent, Swanson described payroll numbers as good. He said as long as people hold onto their jobs, they should be able to repay their debts. And compensation, although it may not keep pace with inflation, is growing.
Inflation is running at 3 percent to 3.5 percent. Swanson said the Federal Reserve is confident about “tamping that back down to 2 percent or lower” but he said most economists think inflation will be higher than that.
“Interest rates are going to start to rise at the end of 2008 or early in 2009,” he said, “but they certainly are not going to be high interest rates.” The low rates will keep the dollar weak for three to seven years, Swanson predicted.
Long-term, Swanson was bullish on the American economy, referencing a Congressional Budget Office study which predicted per capita income, which is at $39,000 annually today, will increase three-fold over the next 50 years due to extraordinary gains in productivity.
tMichaelB is the web site for Tom Bengtson, who writes about business, religion, family and politics.
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