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Saturday, December 15, 2007
November 2007
There are numerous examples of when real GDP growth was strong just before it wasn’t anymore.
1960, 1974,1982,1990,2001,
As mentioned above, households tend to spend a little less of their after-tax income, that is, they increase their saving rate, just before the economy enters a recession. Households collectively sense economic problems ahead, whereas economists collectively are the last to know.
Although we believe exports will be the relative star performer of the U.S. economy in 2008, we are not convinced export growth will be as strong as the consensus believes.
Falling home prices also will erode the value of the collateral underlying outstanding mortgage-backed securities, which will lead to more problems on Wall Street.
Thus, although the FOMC is likely to further cut the federal funds rate starting in early 2008, there is some question in our minds as to whether it will have the policy latitude to cut the funds rate sufficiently to avoid a recession next year.
There are numerous examples of when real GDP growth was strong just before it wasn’t anymore.
1960, 1974,1982,1990,2001,
As mentioned above, households tend to spend a little less of their after-tax income, that is, they increase their saving rate, just before the economy enters a recession. Households collectively sense economic problems ahead, whereas economists collectively are the last to know.
Although we believe exports will be the relative star performer of the U.S. economy in 2008, we are not convinced export growth will be as strong as the consensus believes.
Falling home prices also will erode the value of the collateral underlying outstanding mortgage-backed securities, which will lead to more problems on Wall Street.
Thus, although the FOMC is likely to further cut the federal funds rate starting in early 2008, there is some question in our minds as to whether it will have the policy latitude to cut the funds rate sufficiently to avoid a recession next year.