Will the U.S. economy go into recession in 2008?
Keep in mind, that recession is defined statistically. It means 2 consecutive quarters of negative growth. Therefore, it is easy to see that people may feel like they are experiencing recession, even though they are not in one technically. The current situation may well be such a time. We are on the edge, but not quite there yet.
To answer the issue question, in my opinion, the economy will be in recession by year end. The main reason is that consumer spending is in decline. Since spending by individuals accounts for over 70% of our Gross Domestic Product, this decline will bring on the recession. Major reasons for people reducing spending are the rising costs of food and energy, losses of jobs, the collapsing housing market, and frugality in anticipation of hard times ahead.
It is significant, that the preceding economic expansion cycle, was largely fueled by borrowed money. First, credit cards, until they were maxed out, then home equity loans, until the housing market crashed. Finally, and sad to say, some folks were withdrawing from their 401k to pay for consumer items!
So there is just no way for consumers to keep up spending, unless they do so out of current income. Fat chance!
The fact of the matter is, that unless we, including Washington, learn to live within our means, even rougher times lie ahead.
Dick Brooks