The American economy is in a recession, SunTrust Banks’ chief economist told the Rotary Club of Rome today.
“I know it’s up for debate, but they’re wrong,” Gregory Miller said. He said the recession started late last year and will last until April or May 2009.
“Right now, we have the worst of both worlds, weak economic growth and strong inflation,” Miller said. Going back to the 1960s finds that combination in the economy less than 10 percent of the time, he said.
The widely accepted measure of a recession by economists is two consecutive quarters of negative growth in the economy.
Miller said there was 1.9 percent growth in the Gross Domestic Product index in the second quarter of 2008, but half of that came from tax rebate checks, a one-time event, and the other half was increased product exports due to the weak dollar. Take away those factors, and the GDP for the second quarter would be negative, he said.
The GDP for the fourth quarter, originally a positive 0.6 percent, has been revised to a negative 0.2 percent, he said.
Weak segments fueling the downturn are housing, the labor market and energy prices, Miller said. But he said as the country has lost jobs overall, there is actually an increase in manufacturing jobs as it becomes more expensive to produce products in Asia and Europe.
The weak dollar contributes to energy prices, he said. “Each time the dollar goes down, you have to put down more dollars for a barrel of crude (oil).” He noted that as the dollar has rallied lately, the price of crude oil has dropped, but it is still 60 percent above last year’s price.
He said there are four categories in the retail segment that are not currently negative: electronics, groceries, health care and liquor. So in bad economic times, “Americans turn on the TiVo, open a bag of chips, take a Xanax and pop open a Coors Lite.”
Three indicators of the economy turning around will be housing prices stop falling, business capitalization spending accelerates, and banks start lending money, Miller said.
He also said that data from the first six months of a presidential election year are predictors of the election outcome, and that rising unemployment and inflation, regardless of what happens in the economy after the first six months, make it tough for the incumbent party to win the White House.
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