Daily Ticker

The Sky Is NOT Falling: Recession Fears Are Unfounded, Economist Says

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Markets slid Wednesday after the Federal Reserve offered no clear sign that additional monetary easing was on the way. However, an increasing number of Fed officials did signal more accommodation would be necessary if economic data continues to soften, according to minutes released from its June meeting. The news comes after the Fed had already cut its 2012 growth and inflation estimates.

Headwinds that could tip the balance in favor of more easing include the European debt crisis as well as a divided U.S. Congress, which has until the end of the year to address a slew of tax policies that will send shock waves through the economy if left to expire.

But the Fed's assessment over the state of the economy is somewhat dated. In the weeks since its meeting, the economy has become increasingly negative. Monthly jobs data disappointed yet again, falling below 100,000 payrolls for the third consecutive month in June. Meanwhile, the June ISM Index missed expectations, dipping below the key 50-point mark to 49.7 for the first time since July 2009.

These unfavorable figures, compiled with other tenuous data, have led some economists to believe another recession is imminent.

Take for example NYU Professor Nouriel Roubini, who predicts 2013 is aligning to be the "perfect storm" for the global economy.

Then there's the Economic Research Cycle Institute's Lakshman Achuthan who upped the ante this week from what he told The Daily Ticker in May, which was the U.S. was definitely headed toward negative growth. Now Achuthan tells Bloomberg TV the economy has already tanked and another recession has begun. (Editor's Note: Last September Achuthan told The Daily Ticker the economy was "going to get a lot worse" and then the economy began to gain steam again.)

For a different perspective, we turn now to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi, who has a very contrarian "glass-half full" outlook.

"There are people always pointing to the sky falling it seems like," says Rupkey in the accompanying video. "I think people are too far out in front of it here and are looking for bad things to happen."

Rupkey's case rest largely upon the "crazy seasonal tendency" of recent years whereby the data weakened sharply in the spring only to strengthen again during the fourth quarter and start of the ensuring year. Government payrolls is a perfect example of this. (Check out this chart of historical employment data.)

The economy is currently experiencing another 'Spring Swoon', but if the recent pattern holds growth should rebound later in the year, Rupkey says. While monthly jobs growth below 100,000 is not great for his case, the economy is on track for at least a 1 percent annual increase in nonfarm payrolls, which is non-recessionary.

"If jobs continue at the slower 75K pace in the months to come, that would be a problem for our optimistic forecast," he writes. "But the direction of the economy going forward, cannot be answered at the moment. The economy has picked up after the last three years of slowdown summers and we would bet this will be the case later on this year into early 2013."

Additionally, the S&P is up more than 6 percent percent year-to-date. According to Rupkey, the time to panic will come when markets drop 20 percent from the highs of the year.

"I would try to settle people down," he says of all the doom and gloom, cautioning that the U.S. economy could be at risk of a self-fulling prophecy if we don't try to calm our fears.

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