Friday, September 14, 2007

WSJ: 36% Chance for Recession

The Wall Street Journal yesterday published the results of a survey it ran regarding the outlook for the economy. Here is a brief quote from the article:

"Economists in the latest survey pegged the risk of a recession at 36%, on average, up from 28% a month earlier. Fifty-five economists took part in the survey, and 52 answered the question about the likelihood of a recession. The survey was conducted after last Friday's report on August employment, which
showed the first monthly jobs decline in four years

Even though the Journal survey placed the average chance of a recession at 36%, it showed a wide range of opinions by economists. Some say a recession is practically a foregone conclusion, while others seem to think that a recession is simply not in the cards.

To me this survey suggests that even the professionals, the so-called smart money, don't really have a good sense for where this economy is going. Having said this, the trend in expectations is clearly negative, with far more economists now worried about a recession than were concerned about one only a month ago.

I think that this lack of consesus about where the economy is headed is also a clear indication that the volatility that we have seen in the financial markets will continue, so buckle your seat belts and enjoy the ride. Expect strong up days and dismal down days to follow each other in quick succession in the near term. Personally, I intend to ignore these swings. My friend put it best when he told me the other day: "I know where I am going. Sometimes the view from the road is beautiful, sometimes its ugly, but the view outside my window does not change my destination." Amen to that.

There is one thing that analysts seem to be in agreement about: more pain for the housing market:

"...few analysts say they believe the housing market has reached its low point. Home prices are expected to drop, sales are expected to slow and construction activity is set to decline further through at least the next year."

I think that the operative phrase in the paragraph above is: "at least". Unfortunately, if you party too hard a hangover is part of the deal.

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