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Investing Specialists

Not the Great Recession II

As bad as some of the numbers have been, the signs don't point to another recession.

The economic news this week was pretty bleak. Apparently, a lot of that was already baked in, as the market declined a modest 0.6% overall. Existing home sales, new home sales and durable goods orders were weak and below expectations.  Intel (INTC) also warned that weak consumer spending would hurt September quarter sales, but business spending remained robust.

The GDP report for the June quarter was revised down from 2.4% to 1.6%, slightly better than expected. While still elevated, initial unemployment claims were far better than expected, falling by 31,000 people. On Friday, Federal Reserve chairman Bernanke's pledge to do whatever it takes to save us from deflation was met with applause on Wall Street, igniting a small rally. Consumer loan delinquencies also managed to eke out a small improvement this month, building a small but nevertheless positive trend.

Not the Great Recession II
As bad as some of the numbers have been (and will continue to be for a few weeks), I am still not convinced that we are going back to a horrible recession. Slow growth, maybe. Generally, a recession results from many parts of the economy nearing capacity limitations. This causes sharply rising prices, reducing inflation-adjusted consumer spending capabilities. Fed tightening, to control the inflation further limits consumer spending. That starts production moving downward and the vicious cycle of declines begins.