The Federal Reserve yesterday cut its forecast for economic growth and took steps to stimulate the economy by extending Operation Twist and today the Philadelphia Fed released a weak manufacturingreport, depressing stock prices. Has a recession already begun? No, says economist Fritz Meyer in an interview.
“All of the coincident economic data that we look at week to week and month to month suggest we’re not in a recession,” says Meyer. “While economic growth could be more robust, we are by no means even close to a recession.”
Meyer says the most recent data on the purchasing manager’s index, a broadly followed index of economic strength, has remained in positive territory. While job growth has been anemic, the economy has been creating new jobs net of losing jobs.Meyer also notes that corporate profits, which are historically correlated closely with economic activity, surprised on the upside in recent months. “So it’s hard to see we’ve gone into retraction mode,” says Meyer.
In the video below, Meyer says the Fed is, however, pushing on a string, in implementing another round of quantitative easing. While Fed monetary policy has instilled confidence, it has not achieved its major objective of driving down lending rates.
Interestingly, the Economic Cycle Research Institute, which on September 30, 2011 predicted a recession was imminent, and ECRI has not backed off of that prediction. While conceding the recent economic data has been weaker than expected, Meyer says ECRI — one of the most respected predictors of economic ups and downs — appears to have gotten its last call wrong. Despite recent weakness, Meyer says the economy remains in recovery mode and is not shrinking, according to the most recent data.