The “R Word” Returns

 With the prefab debt ceiling crisis behind us for now, a truly serious threat is emerging. More and more people are again talking about recession.

This may sound a lot like last summer, when business news was abuzz with warnings about a “double-dip” just a year after leaving the Great Recession behind in mid-2009.

That led the Federal Reserve to launch a second round of special monetary support known as quantitative easing or QE2, and spurred the White House and Congress to extend expiring tax cuts in December and launch new ones in January.

This time, some signals are actually worse. We got a shocking report on economic growth that showed the first half of 2011 was nearly stalled out. Job growth flatlined in June, and now purchasing managers say July factory activity moved close to a contraction pace.

A more timely indicator of what’s happening week to week, freight traffic reports from major railroads, show July trailing June for intermodal shipments that should be ramping up by now. Bulk railcar loads are well below their end-of-March peaks, reflecting prolonged weakness in most cargoes except for a few special cases.

Looking ahead, the JOC-ECRI early warning index of sensitive industrial raw material prices is stuck in a very low range, an indicator that demand is yet to percolate for many basic inputs. 

This week, Harvard economist Martin Feldstein said he sees a 50 percent chance of a recession taking hold. Feldstein is one of the academics at the National Bureau of Economic Research who set U.S. expansion/recession cycles.

“This economy is really balanced on the edge,” he told Bloomberg TV.

Even President Obama used the term while railing about how Congress needs to act quickly – this fall, not now of course – on a range of trade, infrastructure, tax cut and jobless benefit measures that can spur job growth or aid those looking for work.

Just focusing on spending cuts or trimming regulations, he said, is “not how we’re going to get past this recession. We’re going to have to do more than that.”

His recession talk could have been a slip, since up to now we’ve seemingly avoided an outright contraction. But it was in prepared remarks, not off-the-cuff comments.

What now? Congress is unlikely to pass any major stimulus actions. It is still in spending cut mode — hang the near-term economic impact —and even throttling many aviation construction projects, in a legislative impasse that could also cost the Treasury billions in lost air ticket tax revenue and project restart expenses.

The Fed is weighing some type of QE3, to replace the heavily criticized program that expired in June, but given the heat it took last round the Fed may hesitate too long.

Many say freight shippers in recent months were largely sidelined by uncertainty around the artificial debt crisis. If so, now’s the time to step up.

But a new concern would be that their customers may not follow as fear spreads. The “R word” may become reality.

-- Contact John D. Boyd at jboyd@joc.com. Follow him on Twitter www.twitter.com/jboydjoc

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