Warnings of a US recession and global slowdown

In an article published on August 10 under the title “The world must prepare for America’s recession”, New York University economist Nouriel Roubini warned that while the US Federal Reserve Board may have been hoping for a “soft landing” when it decided earlier this month to halt its cycle of interest rate rises, the decision has come too late and it now confronts a recession.

“The US recession will be triggered by three unstoppable forces: the housing slowdown; higher oil prices; and higher interest rates. The US consumer, already burdened with high debt and falling real wages, will be hard hit by these shocks,” he wrote.

According to Roubini, the effects of the housing slump will be more severe than those that followed the collapse of the technology stocks bubble in 2000. This is because property comprises a much larger component of household wealth than technology stocks and about 30 percent of the increase in US employment since the recession of 2001 has been related to housing.

The latest US gross domestic product (GDP) figures were an “ominous signal” with consumption of durable goods falling, residential investment in “free fall”, and inventories on the increase as production confronts falling sales. “Higher investment in equipment and software, expected to offset lower spending on housing and consumption, is instead falling.”

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http://wsws.org/articles/2006/aug2006/usec-a18.shtml