by Calculated Risk on 9/29/2005 01:17:00 PM

Knight Ridder reports: Economists mention the ‘R’ word

Economic forecasters and Wall Street analysts are quietly hedging their bets after months of rosy reports about a vibrant U.S. economic outlook. They’re now mentioning the growing possibility of recession.

Why? Soaring gas prices, nightmarish home-heating costs this winter, plunging consumer confidence, rising interest rates and falling new-home sales.

The article quotes Ed Yardeni of Oak Associates:

"The U.S. economy has been remarkably resilient in recent years, but consumers may start to postpone discretionary spending to build some cushion to pay their higher heating bills on top of paying more to fill up their gasoline tanks," he wrote to investors. "In other words, I am not sure that the economy is resilient enough to withstand the one-two punches from the Katrina-Rita tag team."

Yardeni said it was "increasingly likely" the U.S. economy soon could face a six-month bout of stagflation — in which prices rise but wages and hiring stagnate — the economic curse of the 1970s.

Also the Conference Board reported that the help wanted market weakened in August, BEFORE the storms hit: U.S. Help-Wanted Advertising Index Declines Four Points

The Conference Board Help-Wanted Advertising Index - a key measure of job offerings in major newspapers across America - declined four points in August. The Index now stands at 35, down from 39 in July. It was 37 one year ago.

In the last three months, help-wanted advertising declined in seven of the nine U.S. regions. Steepest declines occurred in the West South Central (-19.4%) and West North Central (-10.8%) regions.

Says Ken Goldstein, Labor Economist at The Conference Board: "Key market indicators gave ground just before the storms and flooding. While print want-ad volume rose a bit in June and July, it sagged to May levels in August. Consumers' concerns about finding a new job were also essentially the same in August as in May, but declined noticeably in September, after the hurricanes and flooding. Latest readings show that job growth has been downsized significantly. Before the storms, there was a chance for 150,000 to 175,000 jobs per month over the near term. However, prospects may now be reduced by as much as half of that."

However, online help wanted "ad volume continued to edge higher".

It appears the economy was starting to weaken prior to the devastation of Hurricanes Katrina and Rita. But one thing is certain, all problems will be blamed on the hurricanes.