Are We Talking Ourselves Into a Recession?

Goldman Sachs, now firmly in the recession camp as of last night, might have been a bit hasty in throwing in the towel on the economic expansion. This from the Associated Press: "The Labor Department reported that 322,000 persons filed applications for jobless benefits, down by 15,000 from the previous week when claims had declined by 20,000." A nice data point for those of us who still doubt a recession is on its way. As economist Bruce Kasman of JPMorgan notes: "It is the norm for claims to have increased by roughly 20 percent in the year before a recession begins and before the unemployment rate begins moving higher. Thus far, the rise in jobless claims is modest, more consistent with a sustained growth moderation than a recession."

Ed Yardeni of Oak Associates also makes a good point about recession fears, arguing, for instance, that analysts totally misinterpreted an AT&T earnings report:

No busy signal at AT&T? The stock market sold off...partly on news that the giant phone company said that consumers aren't paying their bills and are getting disconnected. Is the economic situation really deteriorating so rapidly? I don't think so.... I read a transcript of the company's presentation. The CEO said, "So we're really experiencing some softness on the consumer side of the house from the economy." That's all I could find.... It's OK to be pessimistic about bad stuff that is happening in the economy. It is OK to be optimistic about the good stuff. But we should be realistic, and objectively analyze the incoming data, especially during such a controversial period as now. In other words let's not exaggerate either way. The U.S. economy isn't booming. It is slowing, but it isn't in a recession yet, though it does seem to be heading in that direction. December's survey of small businesses was surprisingly mellow, with virtually no indications that small businesses are being forced to retrench as a result of a credit crunch. Most of the recent weakness in the Small Business Optimism Index is based more on anticipated rather than actual conditions: "Two-thirds of the decline in the Index since September came from two components: the outlook for real sales and expectations for business conditions six months from now. The deterioration of expectations triggered a pull-back in the labor market indicators that accounted for the remaining third of the decline."