NCPA - National Center for Policy Analysis

Seven Reasons the Economy Could Be Headed Into Recession

April 22, 2013

The U.S. economy is sending decidedly mixed signals. While some economic indicators are picking up, many others are headed south -- which means there's a good chance the economy could slip into recession again soon, says Merrill Matthews, a resident scholar at the Institute for Policy Innovation.

Consider seven possible warning signs:

  • Stunted Economic Growth: Since the end of the recession in June 2009 the economy grew 2.4 percent in 2010, 1.8 percent in 2011 and 2.2 percent in 2012, with the fourth quarter sinking to a mere 0.4 percent.
  • Vanishing Jobs: The 88,000 new jobs created in March was very anemic -- though follow-up estimates could raise or lower that number. According to the Bureau of Labor Statistics, the labor force declined by 496,000 in March. That's half a million people who just quit looking for a job in one month.
  • Home Foreclosures Are Back: While there has been a lot of upbeat talk about the growing number of housing starts, there has been less discussion about a rise in Federal Housing Authority foreclosures.
  • Consumer Non-Confidence: Consumer confidence took a sharp drop in April to a nine-month low, according to the Thompson Reuters/University of Michigan preliminary index. It's an important indicator because when consumers lose confidence in the economy, they are less likely to spend and invest -- or look for a job.
  • China's Sinking: But at least China's strong economy might bail us out, right?No, China's economy is slowing, from 7.9 percent in Q4 of 2012 to 7.7 percent in Q1 of 2013 -- still a good number, to be sure, but much lower than its average 10 percent growth over the last three decades.
  • Europe's Sunk:And don't expect any lift from the European Union. As ABC News pointed out in February, the EU's gross domestic product shrank 0.6 percent last year, and the EU has suggested it will shrink by 0.3 percent this year.
  • Obama's Big Tax-and-Spend Assault: One of the strongest reasons to think the United States could be entering a recession is Obama's continued economic assault on the economy, as revealed in his most recent budget.

But, as mentioned, the signals are decidedly mixed, and there's reason to be optimistic. Housing starts and the stock market are up. Importantly, the energy boom that is taking place in a number of states could keep the economy afloat. It's providing cheap energy to help manufacturers keep prices down, and it's reducing our need for imported energy.

Source: Merrill Matthews, "Seven Reasons the Economy Could Be Headed Into Recession," Forbes, April 17, 2013.


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