Evaluating the Recession Clock

Not much has changed since last week. For the time being, I will hold the recession clock at 2 minutes to midnight.

Consumption:

The University of Michigan releases a monthly Consumer Sentiment Survey. The release for November saw a drop when a rise was expected. This underscores a disconnect between academics and people. For an academic, the most important economic numbers involve GDP and output, but for the standard person, the most important number is unemployment. Academics have declared the recession over, but until people can feel secure with their jobs, the standard person will see the recession as ongoing.

A drop in consumer sentiment is particularly bad right now. Retail stores are expecting higher sales than last year, and many forecasters are watching holiday retail store numbers to determine their projections, investments, and lay-offs for the next few months. If people are worried about the economy, they will spend less, and we are in for a bumpy road.

Investment:

Businesses and consumers got bad news for lending/borrowing this week. Interest rates remain low, but banks are continuing to tighten lending standards.

A bit of good news though: Housing prices may have bottomed. We don't have enough data to even establish a trend yet, but it is the first glimmer of hope in that market in years. A recovery could easily get people spending money again and pull us out of this downturn, but don't expect it to be quick.

This week we have some potentially very good news mixed with some more-of-the-same bad news. I still think that things could get worse before they get better, and bad holiday sales numbers would make things a lot worse. I put the risk of falling back into recession at very high.