The Recession Started in Q4 2007

The US is likely in recession and it most likely started in December 2007. The December retail sales numbers from the chain stores last week (except for Wal Mart) were extraordinarily weak. The weakest percentage declines from these reports were on a similar trajectory to the percentage retail declines from the 1982 recession. The December monthly employment figures were recession-like. Sears Holdings numbers today were weak as well. Also surprisingly the Manhattan rental real estate market took a nose dive in the 4th quarter. (See the post on the Manhattan Residential Rental Market).

There are positives that I see too. If the US goes into a recession it is likely that commodity prices will fall and the dollar would strengthen. A drop in commodity prices, especially energy prices, would be welcome by the US consumer and a strengthening dollar would also benefit inflation indexes. The dollar would strengthen in a recession because as asset prices decline (think housing, equities) the amount of dollars in circulation would decrease. This cycle would create a scarcity of dollars which would lead to its increase in value. Commodity prices would likely get hit as the consumer would hold onto his dollars and search for replacements to high priced goods and services. In this cycle competition becomes even fiercer. An example of this can be seen from the company Harman today. Harman said "pricing pressures" have affected its business drastically. Hard to believe how quickly things are rolling over.