Yes, U.S. GDP is still rising, according to the latest reports. But that doesn’t mean we’ve dodged a new recession.
Sound surprising? What most people don’t understand is that recessions often begin when gross domestic product is still showing positive growth.
Four of the past six recessions started during a quarter when GDP was growing, as did 72% of all recessions in the past 94 years .
How can that be? The answer is that expansions end — and recessions begin — at the peak of the business cycle, after which the economy begins to contract. _________________________________________________
One reason we believe the economy is heading for recession now is weak job growth. Since February, job growth has turned down, as have other key indicators.
Ominously, in the past 60 years we haven’t seen a slowdown where year-over-year job growth has dropped this low without recession.
Separately, for the past three months, year-over-year growth in real personal income has stayed lower than it was at the start of each of the past ten recessions. These are facts, not forecasts — so the popular story that more jobs will lead to more consumption is missing a key link, which is income growth.
In fact, our research shows a new recession is likely to start by mid-2012. Under the circumstances, complacency about U.S. recession risk is likely to prove badly misplaced. To top of page
(Excerpt) Read more at money.cnn.com …