Skip to comments.Recession will be nasty and deep, economist says
Posted on 08/25/2006 12:45:28 PM PDT by Toddsterpatriot
WASHINGTON (MarketWatch) -- The United States is headed for a recession that will be "much nastier, deeper and more protracted" than the 2001 recession, says Nouriel Roubini, president of Roubini Global Economics.
Writing on his blog Wednesday, Roubini repeated his call that the U.S. would be in recession in 2007, arguing that the collapse of housing would bring down the rest of the economy.
Roubini wrote after the National Association of Realtors reported Wednesday that sales of existing homes fell 4.1% in July, while inventories soared to a 13-year high and prices flattened out on a year-over-year basis.
'This is the biggest housing slump in the last four or five decades: every housing indicator is in free fall, including now housing prices.'
The decline in investment in the housing sector will exceed the drop in investment when the Nasdaq collapsed in 2000 and 2001, he said.
And the impact of the bursting of the bubble will affect every household in America, not just the few people who owned significant shares in technology companies during the dot-com boom, he said. Prices are falling even in the Midwest, which never experienced a bubble, "a scary signal" of how much pain the drop in household wealth could cause.
Roubini is a professor of economics at New York University and was a senior economist in the White House and the Treasury Department in the late 1990s. His firm focuses largely on global macroeconomics.
While many economists share Roubini's concerns about imbalances in the global economy and in the U.S. housing sector, he stands nearly alone in predicting a recession next year.
Fed watcher Tim Duy called Roubini the "the current archetypical Eeyore," responding to a comment Dallas Fed President Richard Fisher made last week in referring to economic pessimists as "Eeyores," after Winnie the Pooh's grumpy friend.
"By itself this slump is enough to trigger a U.S. recession: its effects on real residential investment, wealth and consumption, and employment will be more severe than the tech bust that triggered the 2001 recession," Roubini said.
Housing has accounted, directly and indirectly, for about 30% of employment growth during this expansion, including employment in retail and in manufacturing producing consumer goods, he said.
In the past year, consumers spent about $200 billion of the money they pulled out of their home equity, he estimated. Already, sales of consumer durables such as cars and furniture have weakened.
"As the housing sector slumps, the job and income and wage losses in housing will percolate throughout the economy," Roubini said.
Consumers also face high energy prices, higher interest rates, stagnant wages, negative savings and high debt levels, he noted.
"This is the tipping point for the U.S. consumer and the effects will be ugly," he said. "Expect the great recession of 2007 to be much nastier, deeper and more protracted than the 2001 recession."
He also sees many of the same warning signs in other economies, including some in Europe.
Rex Nutting is Washington bureau chief of MarketWatch.
I think this guy's a Clintonista.
BTW, if he knows so much, how come he's still working? :)
"Recession will be nasty and deep, economist says"
Is that like "mad, bad and dangerous to know"?
Well, if an economics professor says it, it must be so.
Could be. Ford might take itself private which explains why the stock is up today. Maybe Lucent should take itself private. Oops, too late, voted on the merger already, we're French now.
The longfaced donkey from Winnie-the-Pooh
I miss Willie, he was so much fun to poke with a stick and watch fly off the handle....
i think hes right, interest rate swings in the past 6 years have been far too dramatic, thanks to the so called maestro mr greenspan. i dont know about a severe recession, but the bill is coming due for ALL households with higher rates, fuel costs, and reduced wealth effects!!
Newtons Third Law as applied to economics. Still seems to hold true.
Also, he served as Senior Economist for International Affairs, White House Council of Economic Advisers, 1998-1999
( No more Olmert! No more Kadima! No more Oslo!)
That's right! Just looking at the last 5 years we see interest rates (on the 10 Year T-Bond) have climbed from 5% all the way up to 4.791% today.
We're obviously doomed.
Doggone if these guys aren't feverishly trying their hardest to talk this economy down into a basketcase!
His may be the typical PFA theory of economics professors-Plucked From Air.
its only when the tide goes out, that you see who is swimming naked.
"arguing that the collapse of housing would bring down the rest of the economy"
Just weeks ago everyone was talking about the eceomy growing too fast. Now that the effect of the reent interest rate hikes is being felt in the housing market, this bozo talks RECESSION!
What an idiot!
I will agree when people stop going to Starbucks and ordering $3 to $4 cups of coffee everyday.
Gas and commodity prices keep increasing and so does Starbucks stock. These are the items that go first when wallets are being pinched. $15 to $20 a week is a half a tank of gas.