Economist doubts that US will fall into another recession

16 September 2011 19:03  [Source: ICIS news]

BOSTON (ICIS)--The US will unlikely fall into another recession, although the nation's economic growth will remain slow to 2013, an economist said on Friday.

“A lot of economists are what I call scare bears and they get on TV saying we are going to a double-dip recession,” said Stuart Hoffman, chief economist for PNC Financial Services Group. “I am not in that camp but I do recognize the growth we are in is pretty tepid over the next few years.”

Hoffman spoke at the 4th ICIS World Chemical Purchasing Summit in Boston, Massachusetts, US.

He cited modest GDP growth ahead between 2-3% in 2012 and overall growth over the last few months, albeit slow.

“In August, manufacturing output was up slightly. The ISM index dipped but remained above 50, and the ISM non manufacturing has moved up slightly. Retail sales were disappointing at flat, but flat is not down,” he said.

US manufacturing growth slowed in August, according to the Institute for Supply Management (ISM), falling to a pace not seen since the recession and with production slipping into contraction for the first time since May 2009.

The institute said that its closely watched purchasing managers index (PMI) fell by 0.3 of a percentage point in August from July, settling at 50.6% for the month just ended.

“Additional gain in private sector jobs is the key to preventing a double-dip recession and although overall August job growth was disappointing, private sector growth is improving and we see the unemployment rate only modestly lower through year-end 2013,” Hoffman said.

He was referring to the Department of Labor’s (DOL) report earlier this month showing that the US generated no net new jobs in August, the first month of zero jobs growth for the nation since 1945.

Other reasons Hoffman cited that growth will be slow but steady are developing economies, which continue to lead global growth, improved bank-credit availability, restrained US inflation, lower gasoline and housing prices.

The International Monetary Fund (IMF) also sees ongoing global growth through 2013.

“My biggest worry is that we will scare our self into a recession, it will become a self-fulfilling prophecy if our behaviour follows our psychology.”

Hoffman’s outlook was more optimistic than predictions by an economist at the American Chemistry Council (ACC), who said on Thursday that the risk of a US economic recession has risen to 50%.

“Our 2011 outlook has been downgraded, and we now project a one-in-two chance of a recession in the US,” said Martha Gilchrist Moore, senior director of policy analysis and economics at the ACC.

“You should probably carry your umbrella but you don’t need to open it.”

Downside risks that could drive a recession would be sharply higher energy prices, consumer and business confidence crises, government crises, another US Treasury downgrade, housing market relapses and Europe’s sovereign debt problems do not improve.

Hoffman said there is about a 33% probability that the downside risks pan out.

“On the upside, surprises could be more jobs, business and customer confidence rebound, housing and auto markets improve, corporate profits soar, business investment booms, global growth boosts US exports,” Hoffman said. “The probability of these upside surprises is about 7%.”

There is always uncertainty, Hoffman said. “But I think what is even more uncertain now is the range of possibilities, and the confidence we have in ourselves and our leaders to deal with these uncertainties.”

Paul Hodges discusses key influencers on the economy in his Chemicals and the Economy blog

By: Heather McGuire Doyle
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