LCSN: Economy raises concerns of another recession

August 21, 2011. Retrieved online August 22, 2011 from Brook Stockberger, Las Cruces Sun-News

LAS CRUCES – The Great Recession ended two summers ago. The United States economy has experienced growth, sometimes small growth, but growth just the same.

So why are so many people wondering if the country has slid, or is about to slide, back into another recession?

With the stock market jumping and bucking like a riled-up bronco, the housing market bumping along the bottom and unemployment higher than the recently grounded space shuttle program, people feel like they might be reliving a bad dream.

“It’s rough,” said Las Crucen Reyes Molina, who stopped in last week at the Savers clothing store on North Main Street, one of multiple stores in Las Cruces where shoppers can purchase second-hand clothes and other items.

Molina said that he, like many others, continues to watch his budget because he has no confidence in the economy.

“That’s the reason I come,” he said as he left Savers.

“Our sales have been up significantly,” said the store’s manager, Diana Goss. “A lot of it is that people are still being frugal.”

That’s why Wendy Alvidrez from Anthony, N.M., visits the store.

“I shop here regularly,” she said.

Last week, financial services giant Morgan Stanley cut its global growth forecast and reports that the U.S. and Europe are “hovering dangerously close to a recession.”

Jim Peach, who teaches economics and international business at New Mexico State University, said that the country is still dealing with the shock waves of the last recession in areas like housing and jobs.

“The problem is clearly not a supply-side problem (though),” Peach said. “We have the capacity to produce a lot more goods and services. (But) why should businesses seek to expand when they can produce all that consumers are buying without additional investment? Businesses will only invest, and hire, with a reasonable expectation of profit.”

Another recession?

Peach said that the National Bureau of Economic Research declares official recessions, and does so after it considers several variables.

“Generally speaking, they must observe a downturn in many sectors of the economy and the downturn must be widespread geographically,” Peach said. “There is always a risk of recession, but I do not think we are already in one. We have had 10 consecutive months of net gains in jobs; these gains are modest, but I do not see it likely that NBER will declare a recession at this point.”

What could send the country spiraling into another recession?

“Policy deadlock, an unanticipated major shock – the equivalent of another Japanese earthquake, or an oil price shock, or a war could do the trick,” Peach said.

Chris Erickson, who also teaches economics at NMSU, agrees with his colleague.

“It is unlikely that we are in a recession at this point,” Erickson said. “This is a very slow recovery.”

Jobs, or lack thereof

The unemployment rates rose in July in 28 states, according to the Labor Department. Peach said there is no doubt unemployment is the most important issue.

“A high unemployment rate contributes to a weak housing market, weak consumer demand, increased federal expenditures through unemployment compensation, and lower federal tax revenues,” he said.

As of the end of June, the most recent statistics available from the New Mexico Department of Workforce Development show that the Las Cruces area has lost 1,300 jobs through the first six months of 2011.

Erickson said the best single indicator of the future – “although far from perfect” – is the stock market.

“So, the sharp drop-off in the stock market is what worries me the most,” he said.

Read the Las Cruces Sun-News article.

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