So far… trouble has been avoided. The housing market peaked early in 2006. Since then home-building has plunged, dragging overall growth down slightly. But the economy has remained far from recession. Consumers barely blinked: their spending has risen at an annual rate of 3% in real terms since the beginning of 2006, about the same pace as at the peak of the housing boom in 2004 and 2005.
At the same time, rapid growth in emerging markets coupled with a tumbling dollar has provided the American economy with a new bulwark, one that strengthened even as financial markets seized up over the summer. Exports soared at an annual rate of 16% in the third quarter. Thanks partly to strong export growth, revised GDP figures due on November 29th are likely to show that America’s output grew at an annual rate of around 5% between July and September. Never mind recession: that is well above the economy’s sustainable pace of growth.
But the good news may be about to come to an end. The housing downturn has entered a second, more dangerous, phase: one in which the construction rout deepens, price declines accelerate and the wealth effect of falling prices begins to change consumers’ behaviour. The pain will be intensified by a sharp credit crunch, the scale of which is only just becoming clear. And, in the short term, it will be exacerbated by a spike in oil prices””up by 25% since August””that is extreme, even by the standards of recent years. The result is likely to be America’s first consumer-led downturn in close to two decades.
Hmm. The Economist, as a prophet, is without honor among historians, and Larry Kudlow, who is [b]an[/b] economist thought not The Economist thinks that there simply will be no recession this year.