Too Much (panic) too Soon?
I have indeed been pretty preoccupied as of late with the US housing market and housing markets beyond the US borders. I guess I, as many others, have been caught up in the negative market sentiments but I still I want to make clear that I still do not believe in a recession in the US which would reasonably be seen as materializing if GDP growth drops considerably below the 1% mark. The US economy is slowing and has been slowing since the latter part of 2006; pretty much every respectable macroeconomist has been calling this although of course there has been considerable variations in the severity of the predictions of the broad consequences and remnifications for the US economy. So indeed has there been too much panic too soon on the US economy and the subprime mess in the housing sector?
Well, Dave Altig has one of his blog round-ups and seems to find the tone to be a bit too pessimistic for the fundamentals to merit. In all fairness I think Altig has some well made points and especially this one is important ...
In the midst of this, let me make one brief plea for a little perspective: It might be good to remember that this was not entirely unexpected. Since at least summer I have been giving "economic outlook" speeches with the same basic message: Weakness in the residential housing market will continue for some time -- the bottom in prices seems unlikely until at least mid-year.
Now, I have already covered this in the intro above but let me repeat it then. Every macroeconomic forecast I have seen since the summer 2006 (beginning of Q4) be it global or regional has been including a slowing US in the general analysis and that includes the analyses made here at Alpha.Sources too. So as Dave points out ... this is not quite unexpected. Of course there is still the looming risk of a serious systemic risk reaction to the subprime fallout. In fact, you could say that the recessionary call for the US economy pretty much hinges on the viablity of the forecast that the subprime housing correction will spread to the overall housing market thus hurting consumer spending and perhaps also to other sectors of financial markets causing general and widespread turmoil. Some take this scenario as pretty given and as such it is only amount of time before the crash occurs. Some are even beginning to utter the possibility of a crash in the Dollar, an argument I try to counter here.
In the end, I think we need to see some serious macroeconomic data until we really start running for the exits. I expect growth in Q1 and Q2 in the US to come out tarnished by the housing correction but what about Q3 and Q4? Can we really say anything decisive here, I think not. There also seems to be some search of a self fulfilling prophecy in some of the commentaries made on the current economic environment in the US where the imperative of a crash in the US economy seems to shine above assessing the data we actually have at this point. In the end, I see worrying signs too here and especially the potential hit to US consumer spending is something to watch out for but at this point we are still lacking the economic data releases to finally push the panic button.