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IU researchers: Recession relapse is possible 

click to enlarge INDIANA BUSINESS RESEARCH CENTER, INDIANA UNIVERSITY KELLEY SCHOOL OF BUSINESS
  • Indiana Business Research Center, Indiana University Kelley School of Business
by Olivia Ober

Indiana University researchers said new economic trends could be a cause for concern and an indicator that a recession relapse is possible in the future.

Researchers use what they call the Leading Index for Indiana to measure economic trends in different sectors. The July report is at the level of 99.4, which is unchanged from June.

"As in June, the lack of movement in the LII can be attributed to strong countervailing forces. The positive push from the housing market was offset by negative pull from the manufacturing sector," said Timothy Slaper, director of economic analysis at the Indiana Business Research Center at Indiana University's Kelley School of Business.

The group compiles the report monthly.

Slaper said nearly all the data in the past month has been negative with the exception of recent housing markets, leaving "significantly more downside than upside risk." He said the current economic situation in Europe could also soon mean trouble for U.S. economic growth.

"Combine that with the looming 'fiscal cliff,' the political game of chicken eroding consumer and business confidence and mounting economic problems in China, and it is not inconceivable that there will be a recession relapse next year," Slaper said.

The report also noted the erosion of consumer sentiment as found in the Thomson Reuters/University of Michigan consumer sentiment index, which declined from 79.3 in May to 73.2 in June.

The survey said the June decline was highly due to a drop in sentiment among households earning more than $75,000 annually.

"The outlook continues to deteriorate as experts are downgrading their expectations for future economic growth," Slaper said. "Just this month, the (International Monetary Fund) reduced their forecast for global economic growth in 2012 to 3.5 percent, which, with the exception of 2009, would be the slowest annual growth rate in the last decade."

Housing market confidence, however, positively affected the IU index.

The National Association of Home Builders' Housing Market Index increased to its highest level since 2007. This is the highest the index has been since the housing bubble burst. The regional indexes all rose as well.

In addition, housing starts were up 6.9 percent in June and single-family permits were up 0.6 percent. That indicates that the recovery of the housing market might be key in leading the economy out of recession or preventing relapse, IU officials said.

Auto sales also positively affected the IU index, rising 22 percent in June from the levels that existed a year ago

Overwhelmingly, the negative force on the IU index was due to the Institute for Supply Management's Purchasing Managers Index. It dropped from 53.5 in June to 49.7 in July. A value below 50 indicates contracting economic activity, and this was its first time below 50 since July 2009, officials said.

Olivia Ober is a reporter for TheStatehouseFile.com, a news website powered by Franklin College journalism students.

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