Saturday, September 08, 2007

Economy Beginning to Weaken

From the NY Times:

The job market took a serious and unexpected turn for the worse in August, raising fears that the risks of a recession are greater than many economists had believed.

The economy shed 4,000 jobs between July and August, with industries that are connected to the housing market — like construction and manufacturing — making the deepest cuts, the Labor Department reported today. It was the first employment decline since 2003, when the job market was still struggling to emerge from a long slump in the wake of the 2001 recession.

“If the economy is not headed toward recession, it is very close to one,” said Mark Zandi, chief economist at Moody’s

This belies what Bernanke claimed a few months ago about the future of the economy.

(AP) Federal Reserve Chairman Ben Bernanke told Congress on Wednesday he doesn't believe the economy will slip into a recession and rejected the notion raised by his predecessor, Alan Greenspan, that the economic expansion, which started in late 2001, could be running out of steam.

On another topic, Bernanke said the growing troubles in the market for risky mortgages thus far doesn't appear to be spreading to the overall economy. "At this juncture ... the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained," he said.

He hedged his bets, but still said that he expected any problems would only slow down the economy, and didn't believe a recession was in the future.

I suggest reading the rest of the NY Times article so you can understand the various forces that are affecting the economy at the moment. To paraphrase, job creation is down and while official unemployment is flat, the percentage of adults with jobs is down. It's all very, worrying news.


Xanthippas said...

Very worrying, but not at all unanticipated.

Nat-Wu said...

True. I've been reading the comments of economists who are less sanguine about the possibility of recession than Bernanke is. Then again, I can't completely blame Bernanke because if he says "The economy is good" the Dow goes up. If he says it's bad, the Dow goes down, and that has nothing to do with the realities of the market. But still, I'm not sure we've been taking the right steps to avoid recession. One thing would have been to nip this subprime mortgate company collapse in the bud by extending more loans and perhaps lowering the interest rate, a move they were hesitant to make because they claim it slows economic growth. But here we are and Bernanke is going to have to do it anyway. And if they'd put more effort into keeping the housing sector strong, maybe we wouldn't be talking recession at all. But that's what you get from people who don't believe in managing the economy.