Was this a Recession of Choice?

Signs of recession are now unmistakable. Lets take a look.

The Financial Times is reporting World trade decelerates almost to standstill.

"This is a substantial deceleration," the institute said. "World trade volume growth is on a downward trend." The last time annual growth in trade went negative was in 2001, when the shallow US recession that followed the bursting of the technology bubble and the shock of the September 11 attacks caused global commerce to contract.

The institute said that imports into both the US and European Union fell in the three months to January.

Reuters is reporting Recession fears mount on jobless, factory data.

Factory activity in the U.S. Mid-Atlantic region shrank for the fourth consecutive month in March, according to the Philadelphia Federal Reserve Bank's business activity index, which came in at minus 17.4 this month.

"The key message from this survey is that things are quite bad, but that sentiment has, so far, weakened further than hard activity," Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, said about the Philly Fed report.

The Labor Department's report suggested a further deterioration in the job market, although it said increases in first-time claims last week and the week before reflected, at least in part, a strike by autoworkers.

It said 378,000 initial claims for jobless benefits were filed in the week ended March 15, up from 356,000 in the prior week. Economists had expected a rise to just 360,000.

A Key Change In Auto Lending Psychology suggests the American auto industry may be heading for its worst year in a decade.

Recession of Choice?

The ECRI says the U.S. has entered "recession of choice"

The United States has entered a recession that could have been avoided had policy-makers been more willing to heed warning signs and take preemptive action, according to a New York forecasting firm.

The Economic Cycle Research Institute, a firm that focuses on identifying peaks and troughs in the business cycle, made its official call on Friday, stating that the U.S. economy had "unambiguously" entered a recession.

Yet ECRI researchers believe the current troubles were far from inevitable, since a precocious wave of negative sentiment about the economy during 2007 gave the Federal Reserve, Congress, and the White House plenty of time to act.

"This is a recession of choice," said Lakshman Achuthan, ECRI managing director. "The business cycle does not sit around and wait."

He said both aggressive interest rate cuts last year, combined with a more immediate fiscal stimulus package than that delivered by Washington, could have prevented what may prove to be a painful downturn.

"We wasted our luck," said Achuthan.

Things the Fed Had No Choice About

• Home prices collapsing
• People waking away
• A key change in auto lending psychology
• World trade
  
• Rising unemployment
  
• A collapse in commercial real estate
• Rising default rates on corporate bonds

The idea that this recession could have or even should have been prevented is pure lunacy. Consumers were tapped out, job creation slowed, there was an enormous inventory of unsold houses, and overcapacity was rampant everywhere.

The Fed could have slashed interest rates to zero and it would not have stopped this recession. In fact, had the Fed acted earlier than they did, yields on the high end of the curve may have spiked hastening the beginning of the recession.

"This is a recession of choice," said Lakshman Achuthan, ECRI managing director. "The business cycle does not sit around and wait."

Add Lakshman Achuthan to the list of clowns who thinks the Fed can forever prevent a recession. Here is the reality: The best way to smooth the business cycle is to eliminate the Fed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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