No Two Recessions Are Quite the Same

Article excerpt


ARE you a V-ist, a U-ist or perhaps a gloomy List?

A few months ago V-ism was the fashion as economists forecast that US troubles would mean a sharp fall in growth followed by a sharp V-shaped bounce.

Since then, with signs of deepening problems in the US, there have been more U-ists, saying that bottoming out will take longer. The Lists say the fall is clear enough but they cannot foresee the point of recovery yet.

Analysts are rummaging through their charts looking for guidance from the 1991 recession. However, the Greeks have a word or words for this sort of retrospection. As Heraclitus so sagely observed, 'no man goes down into the same river twice'. In short, no two recessions are quite the same.

At Credit Suisse First Boston, the analysts claim that the National Association of Purchasing Managers' indices are the key.

The last 30 years show that when they turn, recovery has begun. It is a beguiling thought, not least since last week's NAPM index was rising at last - good news for V-ists.

All the same, we should not ignore Heraclitus. What makes the current difficulties so serious is that such vast sums of capital poured into IT and in particular the telecoms sector have now been literally destroyed.

And the fact that commercial lending by the banks actually fell in the second quarter is alarming.

The banks are scared - after their experience with the bursting of the tech bubble - of lending to anyone.

Moreover, the US has been weakening against a background of a serious fall in overseas demand for its goods, which may not be corrected quickly. Growth in the second quarter was probably nil.

If the NAPM does continue to improve and the recession or near-recession comes to an abrupt halt, CSFB will deserve praise for its research. If not, of course, then not.

This side of the Atlantic, the European picture is seen as puzzling. But it shouldn't be, Britain is doing pretty well in all the circumstances. …