America's economy down but not out

The British business rag, The Economist, thinks that full blown recession is not yet a possibility.

RARELY have Wall Street's seers been so split. Not only are they divided about where the economy is headed, they even disagree about how it is faring today. Pessimists, such as Nouriel Roubini of Roubini Global Economics, reckon output is slowing from its already desultory pace of 1.6% a year in the third quarter and that recession is imminent. Optimists say GDP growth is rising after a weak summer. After analysing bond, equity and credit markets, Stephen Jen of Morgan Stanley recently argued that the risk of recession was only 13%, down from 19% a month before.

How can opinion be so divided? The glib answer is that America has two economies: residential construction and car production are in a slump, but the rest is still chugging along. Such resilience is why the jobless rate fell to 4.4% in October, its lowest since 2001, and why both wages and hours worked grew smartly. But how sustainable that is depends on whether the sectoral declines worsen and spread.