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Monday, June 18, 2012

Economists Never See Recessions Coming

It's true. Economics is not a science, it's a religion. And, economists never see recessions coming — the so-called “Blue Chip Economists” have never forecast any recession even after that recession has already started.

So, when you read the headline “Economists: US to Post Weak 2% Growth, Barely Avoid Recession,” you should remember their track record is as bad as it gets. Look at the data instead and you'll see for yourself:

The Commerce Department reported that retail sales fell by a seasonally adjusted 0.2 percent in May, while April's figure was revised to a 0.2 percent decline from a previously reported gain of 0.1 percent.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment fell to 74.1 in June from to 79.3 in May, Reuters reports, well below a 77.5 forecast by a Reuters poll of economists.

Consumer spending drives 70 percent of the U.S. economy.

The Federal Reserve, meanwhile, recently reported that industrial production, which includes output from the nation's factories, mines and utilities, contracted 0.1 percent in May from 1.0 percent in April, whose figure was revised down from 1.1 percent.

All those numbers were released after May's dismal jobs report, which showed the country added a net 69,000 jobs that month.

By comparison, January and February added 275,000 and 259,000 net jobs, respectively.

"When you look at retail sales, when you look at industrial production, that's the guts of the economy," said Jonathan Basile, an economist with Credit Suisse, according to the Wall Street Journal.

"And if you look at those indicators, they're telling you things are slowing down."

Adding to the uncertainty stemming from Europe, the U.S. at the end of the year will see tax breaks expire right when automatic spending cuts kick in, a combination known as a fiscal cliff that could siphon hundreds of billions of dollars out of the economy next year and send the country back into a recession.

"The U.S. economy is in low-altitude orbit but threatened by uncontrolled meteors of euro crises and fiscal cliff that might knock it out of orbit," says Allen Sinai of Decision Economics, the Wall Street Journal adds.

A Federal Reserve report, meanwhile, shows that Americans lost 40 percent of their wealth during the Great Recession, most of that due to plunging home values, though incomes and retirement pools such as stock funds suffered as well. "There's nothing in this report that makes me feel good," says Alicia Munnell, director of the Center for Retirement Research at Boston College and an economic official in the Clinton administration, according to the Associated Press.

While housing may be showing signs of bottoming out, a drop in incomes should cause concern as it cuts into confidence, savings and hurts demand.

The only positive bit of economic news is that oil prices are falling, which may soften the effects of the recession as lower gasoline prices give consumers extra cash to spend.