Markets and economy stumble, but economists play down recession risk

The U.S. stock market has gotten off to the worst two-week start to a year in its history and the latest reports on the economy have been almost uniformly weaker. Is the country perhaps headed for a recession?
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The U.S. stock market has gotten off to the worst two-week start to a year in its history and the latest reports on the economy have been almost uniformly weaker. Is the country perhaps headed for a recession?

Leading economists don’t believe so.

Mohamed A. El-Erian, Allianz SE’s chief economic adviser, said on a Fox News program Sunday that the economy is weaker than expected, but probably will not slip into a recession this year.

“We are experiencing a lot of volatility. Growth and wages are lower than where we could’ve been, but let’s not forget it’s an economy that creates a lot of jobs,” El-Erian said in remarks quoted in a Bloomberg report.

In a Business Insider report, Torsten Sløk, chief international economist at Deutsche Bank, said, "Over the past six months I have heard more clients say that despite strong nonfarm payrolls we will soon have a recession. Call it the Groundhog Day recession call. Eventually we will get a recession, but the question is if a recession is just around the corner.”

Sløk said there are few signs from consumers that such a slump is near.

The Dow Jones industrial average and the S&P 500 index have fallen about 8 percent this year and the Nasdaq composite index is off about 10 percent. On Friday, the Dow fell 390.97 points, or 2.4 percent, to 15,988.08. The S&P 500 closed 41.51 points, or 2.2 percent lower, at 1,880.33, and the Nasdaq lost 126.59 points, or 2.7 percent, closing at 4,488.42.

That raises fears of a bear market, but David Chalupnik, head of equities at Nuveen Asset Management, thinks the economy is strong enough to prevent it.

"We don't believe we're going into a bear market," Chalupnik told the Associated Press. "The reason for that is the U.S. economy is sound."

Nonetheless, the combination of a falling stock market and the release of several weaker than expected economic reports on Friday raised concern.

Despite the boost the holiday season often provides, retail sales fell 0.1 percent in December after rising 0.4 percent in November. For the full year, retail sales rose only 2.1 percent, their weakest showing since the recession year of 2009, Reuters reported. They rose 3.9 percent in 2014.

Excluding automobiles, gasoline, building materials and food services, sales fell 0.3 percent after a 0.5 percent gain the prior month.

The University of Michigan said its Consumer Sentiment Index rose to 93.3 early this month from 92.6 in December, but Reuters said households were less upbeat about current conditions, reflecting the turmoil in the stock market.

Friday's reports joined weak data on construction, manufacturing and export growth in suggesting that overall economic growth slowed abruptly during 2015’s fourth quarter. They could raise fears that weakness in manufacturing and export-oriented sectors was reaching the rest of the economy.

"While this growth slowdown should prove temporary, the deceleration in consumer spending could be a worrying sign of possible contagion to the domestic side of the economy from the global headwinds," Millan Mulraine, deputy chief economist at TD Securities in New York, told Reuters.

Troubles in the economy and the markets are making it appear less likely that the Federal Reserve will raise interest rates again in March. The central bank lifted its benchmark overnight interest rate in December for the first time in nearly 10 years, and economists said at the end of 2015 that they expected another move in March.

There are relatively few significant reports on the economic calendar during this holiday-shortened business week. On Wednesday, economy watchers will see the Labor Department’s Consumer Price Index for December. No increase is expected, and such an outcome would be a further sign that inflation remains at bay. Prices were flat in November.

Wednesday additionally will bring the Commerce Department’s report on December housing starts. Economists are predicting a seasonally adjusted rate of 1.22 million, up from 1.17 million in November.

On Friday the National Association of Realtors’ December report on home resales is expected to show an increase to a seasonally adjusted annual rate of 5.16 million, up from 4.76 million the previous month.

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