http://www.rgemonitor.com/blog/roubini/142140The macroeconomic indicators published in the last week or so have strongly reinforced my out-of-consensus view that the US economy will fall into a recession by early 2007: quite simply most of them are headed sharply south, consistent with a sharp deceleration in growth in H2 that will lead to a recession by 2007.
First, consumer confidence is sharply down as consumers are in a foul mood. No surprise as the three bears of slumping housing, high oil and the delayed effects of rising policy rates are beating down a consumer with falling real wages, negative savings, high debt ratios, rising debt servicing ratios and mediocre job growth.
Second, all indicators of the housing sector show not just a slowdown, not just a slump but an outright rout in the housing sector. As, the Toll Brothers (the homebuilders known for the McMansions of the roaring housing bubble times) put it last week this is the worst housing oversupply slump in the last 40 years. And this is not just the self-serving view of a once high-flying homebuilder whose stock prices is collapsing along that of all Reits and other homebuilders. All the indicators from the housing sectors - including the latest housing starts and homebuilders (NAHB) forward looking business conditions - indicate a housing sector that is literally in free fall. Real residential investment already fell at an annualized rate of 6.4% in Q2; expect it to fall at rates of 12-15% for the next few quarters. And, as I have argued before, the wealth effects and the employment effects of this housing meltdown will be severe, much larger than the effect of the tech sector bust in 2000-2001.
Third, consistent with this housing rout, lending indicators - both for housing and consumer loans - are also headed south. While the supply of credit is not getting tighter, the demand for credit by firms and households is sharply slowing. Of course, the slowdown in the demand for home mortgage related to the housing slump. But now you are also seeing lower demand for C&I loans; this suggests that investment spending may be falling ahead, as already signaled by Q2 data on real investment in equipment and software. Moreover, home equity withdrawal (HEW) will be sharply down soon enough once the housing price flattening turns into an outright fall in average housing prices (such prices already starting to fall in the bubble regions of the US). And with lessened HEW, the ability of households with negative savings to consume more than their incomes - as they have been doing for two years with negative savings - will be severely curtailed.
. . . more at the link
http://www.rgemonitor.com/blog/roubini/142140added note -
Roubini's bio will set some tinfoil on fire:
Nouriel is a Professor of Economics at the Stern School of Business at New York University (see http://pages.stern.nyu.edu/~nroubini/ for his Stern homepage). His applied academic research includes seminal work in international macroeconomics, global macro policies, financial crises in emerging markets and their resolution, and the reform of the international financial architecture. As a leading economist in the field of international macroeconomics, Nouriel has had significant senior level policy experience. Numerous policy appointments include former assignments as Senior Economist for International Economics at the White House Council of Economic Advisors, Senior Advisor to the Under Secretary for International Affairs at the U.S. Treasury, Director of the Office of Policy Development and Review at the U.S. Treasury. He has been a policy and research consultant at the IMF since 1985, and is a member of many leading policy forums and organizations including the Bretton Woods Committee, the International Roundtable of the Council of Foreign Relations, the NBER and the CEPR. Nouriel is a consultant for a wide range of policy institutions, Central Banks, and a number of senior executives from major financial institutions. His recent book with Brad Setser on financial crises in emerging markets, Bailouts or Bail-ins? Responding to Financial Crises in Emerging Economies, was published by the Institute for International Economics Council of Foreign Relations in 2004.
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