In last Thursday’s webinar, “The U.S. and the World Economy: Will They Shift Forward?,” presenter William Strauss, senior economist and economic advisor at the Federal Bank of Chicago, addressed SEMA members’ growing concerns regarding the impact that current and future economic challenges will have on their businesses.
“This webinar was designed to give us a better understanding of the current state of the U.S. economy, its future outlook and primary risks facing the overall health of our system,” said Tom Myroniak, SEMA vice president of marketing and member services.
Strauss began the webinar by emphasizing that the U.S. is not currently in a recession. He noted that the National Bureau of Economic Research, an independent organization, is the one that makes this call and that they have yet to declare a recession. Strauss revealed that it is a common misinterpretation that two consecutive negative quarters of GDP growth is what defines a recession in the United States.
It is often the case that this coincidentally occurs as it did in the 1990–1991 recession, but in the case of the 2001 recession, while there were three negative quarter growths, none of them were consecutive. The NBER looks at monthly data, such as employment growth and industrial production. According to Strauss, the last recession peaked in March 2001 and reached a trough in November of the same year. The economy has been expanding since that point in time.
“While historically you do not need to have two consecutive negative quarters to have a recession, in all of the recessions that have been called for the U.S. economy, we have had at least two negative quarters of GDP growth, and so far we have had just one and that occurred in the fourth quarter of last year,” said Strauss.
Strauss declared a strong performance for the second quarter and a growth of 2.8% for the national economy, which is the overall GDP growth on a quarter-to-quarter annualized rate. He also observed an upside for SEMA members amid all the economic challenges.
“With the weaknesses that we have been seeing, it appears that businesses, in particular in the automotive industry, have been very aggressive at trying to keep their production in line with defining sales,” said Strauss. “So they have been able to take out inventories as the economy has weakened. What that means is that when the economy gets back on its feet and begins to expand, they will not have to be selling out inventories because of having bloated inventories. Production will be able to ramp back up fairly quickly in line with economic prospects.”
Strauss summarized his webinar with the following forecasts:
- The outlook is for the United States to expand at a rate below potential through 2008 and into 2009.
- Employment is expected to struggle this year and next, leading to a moderate rise in the unemployment rate.
- The volatile credit markets and the weak housing market are the biggest risk on the horizon for the U.S. economy.