Lakshman Achuthan raised eyebrows in September by declaring the U.S. economy was “tipping into a new recession, and there’s nothing policymakers can do to head it off.”
Three months later, the managing director of the Economic Cycle Research Center isn’t backing off his gloomy forecast for 2012, despite signs that employment, housing and other gauges are stabilizing. He said ECRI’s leading indicators belie the notion the economy will “muddle through” with tepid growth.
“I would point out that that’s never happened,” he told Bloomberg News. “We never muddle through. A market economy does not want to have a static state. It either accelerates or decelerates, and these forward-looking cycle indicators say it decelerates.”
ECRI’s Weekly Leading Index, which includes the JOC-ECRI Industrial Price Index, signals business cycle trends several months in advance. The WLI peaked above 130 in February and March but has trended downward since. Growth rates for both the WLI and the JOC-ECRI IPI have been negative since August.
Despite ECRI’s record of accurately forecasting business cycles, most economists aren’t ready to concede a new recession. Forty-five economists surveyed by the Federal Reserve Bank of Philadelphia had a consensus forecast that real GDP growth will rise 2.4 percent in 2012 and 2.7 percent in 2013. Each of those numbers was revised downward 0.2 percentage points from their recent survey.
Walter Kemmsies, chief economist at port engineering firm Moffat & Nichol, said he expects U.S. GDP to rise 2.5 to 3 percent next year. That assumes policymakers can navigate the eurozone crisis and shocks such as natural disasters or a spike in oil prices don’t combine to grind the economy into reverse.
“I think 2012 will be either better than consensus or a lot worse than consensus,” he said. Policy missteps, particularly in Europe, could choke off financial lending and induce a recession, but Kemmsies rates the chances of that at “5 percent or less.”
Central banks and other policymakers have had plenty of warning and are unlikely to let the crisis spin out of control, Kemmsies said. “Policymakers have shown that they are not likely to let this situation get too bad,” he said. “They’re looking out for this, and they have lots of tools available.”
Europe is almost certain to be battered by recession in 2012, most economists agree.
“Fiscal austerity is in full swing, bank credit is tightening, and confidence is plummeting. With few exceptions, the eurozone economies will see negative growth next year, with the region as a whole contacting by about 0.7 percent — at best,” Nariman Behravesh, chief economist at IHS Global Insight, said in a research note.
Europe’s threat to the U.S. economy would be mostly indirect, by causing lenders to tighten credit and choke off economic growth. “The real risk of Europe isn’t the direct impact on the U.S. economy, it’s the indirect that would happen if the crisis caused credit to dry up,” Kemmsies said.
If policymakers can steer through the eurozone crisis and lay the groundwork for sustainable growth, the world “will be on its way next year to overcoming the near-depression experience we’ve been through,” he said.
U.S. consumers have been coming out of their shell. Retail sales grew in November for the 17th straight month, the Commerce Department said. The unemployment rate slipped to 8.6 percent in November, gasoline prices are down, and the Conference Board’s consumer confidence index hit its highest level since July, and posted its biggest monthly gain since April 2003.
Debate persists, however, about how freely consumers will spend during 2012.
Kemmsies calculates household debt ratios by dividing Fed data on household debt by Commerce Department statistics on personal disposable income. That ratio now is about 120 percent, down from a peak of 130, but is still about twice the level considered sustainable.
With companies keeping inventories tight, even a gradual rise in consumer spending could provide upside for transportation volume. “A combination of record low inventories relative to sales in the distribution sector and continued growth in demand should lead to restocking in the coming months, which should benefit our company,” FedEx CEO Fred Smith told analysts this month.
FedEx expects U.S. GDP to rise 2.2 percent next year, with industrial production growing 3.9 percent and consumption rising 2.2 percent. The company forecasts world GDP growth next year at 2.9 percent, with developed countries expanding 1.8 percent and emerging countries growing 5.8 percent.
Journal of Commerce Economist Mario O. Moreno said a burst of post-holiday restocking is likely, but it’s unclear whether it will continue after Chinese factories reopen following the Lunar New Year observance that begins Jan. 23.
Moreno forecasts overall U.S. containerized imports will rise 2.8 percent to 17.4 million 20-foot equivalent units in 2012 after increasing 2.2 percent this year. He expects exports to grow 3.8 percent to 12.3 percent in 2012 after a 5.8 percent increase this year.
This year’s growth in containerized shipments has lagged intermodal rail shipments, which the Association of American Railroads reports were up 5 percent year-over-year through Dec. 10.
Railroad officials say intermodal rail has benefited from growth in manufacturing, conversion of truck freight to rail and increased “near-sourcing” that uses surface transportation from Mexico to supplement the high-volume flow of ocean shipments from Asia.
Manufacturing’s strength in 2011 also has bolstered truck shipments. The American Trucking Associations’ seasonally adjusted for-hire trucking index rose 0.5 percent in October after a revised 1.5 percent gain in September. The October reading was up 5.7 percent year-over year and was just 4.4 percent below its January 2005 peak.
Growth in U.S. manufacturing is expected to carry forward into next year. The Manufacturers Alliance for Productivity and Innovation forecasts manufacturing industrial production will increase 3 percent in 2012 and 4 percent in 2013 after an expected 4 percent rise this year.
“We project that the pace of manufacturing growth will outperform overall GDP growth,” said Daniel J. Meckstroth, MAPI chief economist. “Pent-up demand for postponed consumer durable goods continues to exist, particularly in motor vehicles. In addition, firms are profitable and have the need to spend more for traditional and high-tech business equipment, and reasonably strong growth in emerging economies is still driving U.S. exports.”
Export growth is expected to continue to outpace imports in 2012. Kemmsies said this argues for increased investment in transportation infrastructure that provides capacity for increased exports of agricultural commodities and other goods. “The time to do this,” he said, “is when costs of raw materials and labor are low.”