Not Again: Will America Experience Another Recession in 2010?
Government spending, weak dollar could spark fears of inflation.
The US economy may produce modest growth late this year, but could slip into a "double-dip" recession if high government spending and a weak dollar spark fears of inflation, The Conference Board says.
The nation experienced back-to-back recessions in 1980 and 1982.
"If the United States experiences a too rapid recovery, there may be a risk of another recession in 2010," Bart van Ark, vice president and chief economist at The Conference Board, said in a report. "It may fuel expectations for a return to inflation, adding to the uncertainty concerning the pattern and path of economic recovery."
But van Ark says that's unlikely for 3 reasons:
- Inflation was the major concern in the 1980s. Deflation is the now the greater threat for the short and medium terms.
- In the 1980s, much of the problem stemmed from the economy's move to services from manufacturing. The current crisis was sparked by overleveraged balance sheets and global imbalances between consumption and savings.
- "Massive governmental intervention" is intended to prevent further economic decline and ease the increase in unemployment.
Nevertheless, US GDP could decline 2.6% in 2009, the sharpest annual decline since 1946. The Conference Board says nominal output, or the value of output that reflects price change, may fall more than 4% because disinflation is more likely than inflation in the short term.
But there are early signs for optimism.
"The Conference Board's Leading Economic Index and Consumer Confidence Index suggest that the recession will not intensify further," the report says. "The decline in real consumer spending has leveled off a little. Retail sales, excluding cars and car parts, rose by 0.7% in February, and some turns in the measure of home sales and prices were also recorded."
The Conference Board looks for negative growth in the second quarter and, at best, a "very slow" recovery in the third quarter because capital spending will remain low and inventories won't be depleted until the end of the year.
"Overall industrial production is also unlikely to move up before the fall," the report says. "Even the recovery in the fourth quarter will be held back by these negative trends and increased unemployment, which is typically a lagging indicator."
The New York-based Conference Board is a non-profit, global membership organization that provides information to businesses to help executives make informed decisions.
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