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Time to be right?


Although I have been a member of the National Association of Business Economics (NABE) for many years, I usually pay little attention to their economic forecasts, which invariably tend to see the future as a mere continuation of the past.  Most economists just extrapolate the present into the future . . . it is always “more of the same.”

This time, I agree with the majority of economists.

They predict the odds of a second recession are low, that GDP will grow 2.4% next year, that unemployment will improve very slowly, consumer spending will remain weak while business spending remains strong, and that housing starts will improve about 10% next year.

This is a typical recovery from a financial crisis.  While a recovery from a normal recession can be rapid, it takes a longer time to recover from a financial crisis because debt is reduced over a longer period.  Consumers are spending less because they are reducing debt and saving more, which is good for the overall economy in the long-run but bad in the short-run. 

The NABE forecast was silent, however, on the most pressing issue of our time, i.e., the financial crisis in Europe.  That could change everything, plunging the U.S. back into recession but unlikely to plunge us back into another financial crisis.  That is an important distinction, because we would recover more rapidly from that recession than Europe would from their financial crisis.

I think the majority of economists are right this time, just like a broken clock is right twice a day.

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