Gary Shilling, an economist and financial analyst who is credited with predicting several recessions over the past 40 years, thinks the U.S. is in a relatively mild slump
- Recent data shows slight downturn in the American economy
- Consumer confidence index dropped 9.8 points to a reading of 121.5 this month
- Sales of single-family homes unexpectedly fell for a second straight month
- Analysts say markets are worried by escalation in trade tensions with China
The well known economist who accurately predicted the housing crisis of 2008 says that America is in a recession, albeit a mild one.
Gary Shilling, the economist and financial analyst, thinks the United States is in the midst of a slight downturn.
‘I think we’re probably already in a recession but I think it will probably be a run-of-the-mill affair, which means real GDP would decline 1.5 per cent to 2 per cent, not the 3.5 per cent to 4 per cent you had in the very serious recessions,’ said Shilling, who is president of A. Shilling & Co.
While the stock market may not go into a freefall as it did during other more serious recessions, it will likely dip somewhat, according to Shilling.
In an interview with Real Vision, he predicted that stocks would drop about 22 per cent.
Gary Shilling, the economist and financial analyst, thinks the United States is in the midst of a slight downturn
Shilling says that the current recession could be attributed to a decline in industrial production as well as a slowdown in the global economy.
Exacerbating matters is the Trump administration’s trade war with China.
In more bad news for the economy, U.S. consumer confidence tumbled to a 21-month low in June as households grew a bit more pessimistic about business and labor market conditions amid concerns about a recent escalation in trade tensions with China.
The economy’s prospects were further dimmed by other data on Tuesday showing sales of new single-family homes unexpectedly fell for a second straight month in May.
Growing risks to the economy, especially related to the trade war between Washington and Beijing, and low inflation prompted the Federal Reserve last week to signal interest rate cuts beginning as early as July.
‘The headwinds from the ongoing trade war the economy faces are definitely growing stronger, and it will be a miracle if Fed officials can pull a rabbit out of their hats and keep the economy moving forward,’ said Chris Rupkey, chief economist at MUFG in New York.
The Conference Board said its consumer confidence index dropped 9.8 points to a reading of 121.5 this month, the lowest since September 2017, from a downwardly revised 131.3 in May.
This month’s drop in the index was the largest since July 2015.
The index, which was previously reported at 134.1 in May, still remains at lofty levels, suggesting consumer spending remains supported.
The Conference Board blamed the decline on the trade tensions and cautioned that continued uncertainty ‘at some point, could even begin to diminish consumers’ confidence in the expansion.’
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The economy will mark 10 years of growth next month, the longest expansion on record.
President Trump last month imposed additional tariffs of up to 25 per cent on $200billion of Chinese goods, prompting retaliation by Beijing.
Trump has threatened more duties on Chinese imports if no deal is reached at a Group of 20 nations summit this week in Japan.
Economists polled by Reuters had forecast the consumer confidence index at 131.1 in June.
The Conference Board survey showed a decrease in the share of consumers with a favorable assessment of business conditions this month.
The survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, fell to a one-year low of 27.6 per cent in June from 33.5 per cent in May.
That measure closely correlates to the unemployment rate in the Labor Department’s employment report.
‘The rolling-over that we are seeing here in jobs plentiful is worryingly reminiscent of what we have seen late in prior cycles,’ said Tim Quinlan, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Trade tensions with China is also being blamed for some of the data indicating a slowdown in the economy. President Trump is seen above at the White House on Wednesday
‘If past patterns hold, without a turnaround in this series, job growth could slow in coming months.’
The economy created 75,000 jobs in May, a sharp step-down from 224,00 in April.
Last month’s tepid job gains were largely viewed as an anomaly, given that a key labor market indicator, weekly claims for unemployment benefits, remains low.
Job growth has averaged 164,000 per month this year compared to 223,000 in 2018.
The pace of job gains, however, remains well above the roughly 100,000 needed per month to keep up with growth in the working age population.
The unemployment rate is hovering near a 50-year low of 3.6 per cent.
The dollar was trading higher against a basket of currencies, while U.S. Treasury prices were mixed. Stocks on Wall Street were trading lower.
Gross domestic product growth estimates for the second quarter are ranging from a 1.5 per cent to 2.4 per cent annualized rate.
The economy grew at a 3.1 per cent rate in the first quarter.
Slowing growth was underscored by a separate report from the Commerce Department on Tuesday showing new home sales dropped 7.8 per cent to a seasonally adjusted annual rate of 626,000 units in May, the lowest in five months.
April’s sales pace was revised up to 679,000 units from the previously reported 673,000 units.
Economists had forecast new home sales, which account for about 10.5 per cent of housing market sales, rising 1.9 per cent to a pace of 680,000 units in May.
New home sales are drawn from permits and tend to be volatile on a month-to-month basis.
Sales fell 3.7 per cent from a year ago.
The Dow Jones Industrial Average finished down more than 11 points on Wednesday
The housing market has remained sluggish even as mortgage rates have dropped, with builders continuing to complain about land and labor shortages.
Tariffs on Chinese imports are also worrying homebuilders.
Lennar Corp, the No.2 U.S. homebuilder, said on Tuesday the impact of tariffs on Chinese goods resulted in a headwind of about $500 per home on average during its second quarter, which ended on May 31.
Overall, housing data have been mixed. Reports last week showed single-family starts dropped in May, but building permits for this market segment rebounded after five straight monthly declines and home resales rose solidly.
Sentiment among builders dipped in June.
A third report on Tuesday showed the S&P CoreLogic Case-Shiller composite index of home prices in 20 metropolitan areas rose 2.5 per cent in April on a year-over-year basis after increasing 2.6 per cent in March.
House price inflation has been slowing after last year’s surge in mortgage rates dampened demand for housing.
‘A slowing economy will constrain housing demand, and that implies house price growth will continue to ease to around 2 per cent year-on-year by the end of this year,’ said Matthew Pointon, property economist at Capital Economics in New York.
‘We doubt lower interest rates means housing demand will continue to climb.
‘After all, home-buying sentiment is subdued and banks are no longer loosening lending standards.'
