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More Signs Of A Recession In 2013

December 21st, 2012

Diane Alter: Stalled fiscal cliff negotiations have fueled concerns the U.S. could face a recession in 2013 if the country fails to avert the cliff. But recession 2013 may be on the way regardless of what happens with the fiscal cliff talks. 

The latest sign of an economic downturn came Tuesday in a U.S. Commerce Department report showing imports to the United States have fallen two consecutive months after dropping 8.4% in the third quarter and 2% the previous quarter.

Robert Brusca, chief economist at FAO Economics, told MarketWatch when the economy weakens, imports decline quickly.

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Brusca called the latest figures a “red flag” and said a 2013 recession is a “real risk.”

The last time imports declined for two quarters was in 2009, at the end of a four-quarter decrease in imports during the Great Recession.

More Signs of Recession 2013

Signs of a possible recession in 2013 date to August when the Commerce Department reported orders for durable goods fell 13.2% and inflation-adjusted personal income dipped 0.3%.

Now Morgan Stanley (NYSE:MS) has released grim projections for 2013. The bank said the global economy could see a “twilight zone” of little growth next year, which will get worse if policymakers fail to reach a fiscal cliff deal. MS analysts forecast a full-blown recession in 2013 if we go over the cliff, with the gross domestic product likely to shrink 2%.

In a recent report, Morgan Stanley wrote, “More than ever, the economic outlook hinges upon the action taken or not by governments and central banks.”

Falling over the fiscal cliff, a distinct possibility, would usher in a contraction in U.S. GDP for the first three quarter of 2013, Morgan Stanley analysts said.

With just 11 days left for Congress to hammer out some sort of agreement, a deal to avert the fiscal cliff entirely looks highly unlikely.

And even if lawmakers reach an agreement, the U.S. economy still faces many hurdles next year.

Individuals and business have already begun bracing for the worst.

“Cliff-related uncertainty already has arrested business spending and prospects of a delayed solution are eroding financial conditions well ahead of yearend,” Citigroup Inc. (NYSE: C) economist Robert DiClemente told Forbes last month

Should fiscal cliff discussions linger into the first part of next year, the U.S. economy and job growth are likely to suffer.

And nearly all taxpayers will have to pay the government more next year. Workers will receive less in their paychecks as the payroll tax holiday likely expires, and higher income earners will face higher individual income tax rates and tighter limits on deductions and other tax breaks.

Global Slowdown Expected

At the same time, global woes will affect the U.S. economy.

The International Monetary Fund (IMF) warned in October when it slashed its growth forecasts for the second time since April that the worldwide economic slowdown is accelerating.

If U.S. and European policymakers continue to drag their heels on fixing what ails their economies, the slowdown could grow more severe.

In its World Economic Outlook, the IMF questioned if the sluggish global economic environment was to be expected as struggling nations claw their way to a recovery or if the downturn has a “more lasting component.”

The IMF called America’s fiscal cliffhanger and Europe’s sovereign debt mess the most pressing fiscal global issues.

It forecasts the global economy will remain “very fragile” in the immediate future and notes it will take time to fix the Eurozone issues.

For the United States, the IMF says “urgent policy priorities” should be averting a fall over the fiscal cliff, which the fund says could trim more than 4% off the GDP in 2013, stalling economic growth.

Even if the United States avoids falling over the fiscal cliff and agrees to raise its debt ceiling, Europe’s tribulations will still have an adverse impact on the U.S. economy, and vice versa.

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Written By Diane Alter From Money Morning

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