Recession ahead?

Some interesting economic news today.

Savings rates: It's the worst since the Great Depression, negative 1 percent. Meaning people are spending more than they're taking in and not putting money aside for a rainy day. But take that with a grain of salt, because the savings rate is a highly flawed statistic. it doesn't count home equity, for instance, or retirement accounts or stock appreciation. It's basically a measure of cash flow, not solvency. It's true we stink as savers, but not nearly as bad as the savings rate would indicate. A more accurate picture would rename the savings rate to "cash flow" and pair it with a net worth measurement.

Other economic news: The same link shows the ISM manufacturing index falling below 50, an indication that the sector is contracting, while jobless claims also fell, indicating fewer workers being laid off. But job growth was a lower-than-expected 111,000 -- not enough to keep up with population growth -- and as a result the unemployment rate ticked up to 4.6 percent. Wages were essentially flat, rising about as much as inflation.

A couple of economists I know -- one a Republican, one a Libertarian -- think we're headed for a mild recession in 2007. The above numbers, plus the cooling of the housing market, generally lend credence to that view. An interesting thing to speculate about is the timing. In an expansion, wages typically lag overall economic growth. But this expansion has been unusual in the length of that lag, and overall wages are only now starting to rise in meaningful amounts -- just in time for a new recession to put an end to that. Which means we would have gone through an entire expansion cycle without much if any benefit trickling down to the workers. They aren't going to be happy about that. It also helps explain why a lot of people don't think the economy is all that fabulous even though the macro statistics are pretty good.

economy, politics, midtopia