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Have You Seen This?

Have You Seen This?



Monday, February 18th, 2008:  Maybe I’m taking the wrong approach, updating you each Monday on the health and path of the economy.  And talking about the ongoing debate about recession or not lying ahead.  Maybe the best approach is to look at a couple of the classic indicators of recession and discuss how they have changed since we all know the one thing we can bet on is change.  In fact, change, because of globalization, is one of the themes in former Federal Reserve chairman Alan Greenspan’s history of the American economy: The Age of Turbulence.  Dr. Greenspan is a great advocate of letting the marketplace operate unregulated, which is generating much criticism about his past policies right now.  But his book title shows he still understands how hard it’s been and remains on individuals in today’s world of global competition and job insecurity.


First off, in today’s new global economy, watching inventory levels seems to have lost its importance.  Inventories just don’t back up and get worked off much as in past cycles since we now have what’s called, just-in-time global supply chains.  Just meaning that companies can get inventory fast when needed thus eliminating the need for lots of inventory.  Second, we have changed labor markets.  In decades past, companies laid off manufacturing workers when business took a major downward turn.  Today, America has a much smaller manufacturing work force and has been shrinking it for years.  Thus there just aren’t that many people to lay off.  Third, how about real estate and auto manufacturing.  Both businesses are in the tank right now, which would have caused a deep recession in years past, like back in the early 1980s.  But today they are not the whole US economy anymore, not with the Internet providing more and more jobs and with the gaming industry being legalized in more and more states.  Things are quite different.


Schwartz View:  Bottom line, it’s a new world we live in today.  So why not a recession coming from unlikely sources which maybe no one can predict.  I see where the Economic Cycle Research Institute’s leading US index, which has a good track record of predicting recessions, fell again in it’s latest weekly update to the lowest growth rate since the 2001 recession.  Yet ECRI’s managing director Lakshman Achuthan still says he’s not calling a recession yet saying we’re winning the war on inflation as Wal-Mart has been cutting prices.  I can’t agree.  Last time I was at WMT, prices seemed higher, a cashier confirmed that and China, the major Wal-mart supplier, shows higher export prices for eight straight months now.


Posted 02-21-2008 8:57 AM by Richard Schwartz