Mark Twain’s famous quote rather sums up my current feelings about the state of the US economy. This is the most important single indicator of future chemical industry sales. And a couple of months ago, I aligned myself with Warren Buffett in suggesting that the US was probably in recession. Last week, this looked like a bad call, when the US government reported GDP up 0.6%. One could argue that this was only due to a rise in inventories, which might be a sign of weakness, not strength. But a positive number was still a positive number. Or was it?
This week, Prof Martin Feldstein of Harvard has suggested that the GDP report was ‘very misleading’. He went on to add that ‘monthly data since January indicate that economic activity and GDP have been declining since the start of this year’. And Prof Feldstein is not your ordinary academic. His views carry enormous weight, as he is also President of the body that officially decides whether, or not, the US economy is in recession. So my call may turn out to have been right, after all.
Prof Feldstein went on to warn that, in fact, a ‘deep decline’ is in prospect. He notes that 8 million US households are now in negative equity, and ‘more than 15% of all outstanding mortgages’. With US house prices ‘falling at a 25% annual rate over the past 3 months’, he suggests that there could be ‘widespread defaults and foreclosures’. This would have a major impact on chemical sales, as housing is such an important source of demand.
In March, during NPRA, I wrote in ICIS Chemical Business that ‘recession was a real threat’, and forecast that ‘those companies with robust contingency plans will find themselves with a major advantage’. Now it seems that Prof Feldstein shares Warren Buffet’s downbeat assessment of current economic prospects. I hope that readers have taken action to ensure that their business is well prepared for a potential economic downturn.