MWM: Not that you don't already know this, but...

Recession Will Be Nasty and Deep, Economist Says

Housing is in free fall, pulling the economy down with it, Roubini
argues




August 23, 2006
By Rex Nutting
MarketWatch

WASHINGTON (MarketWatch) -- The United States is headed for a recession
that will be "much nastier, deeper and more protracted" than the 2001
recession, says Nouriel Roubini, president of Roubini Global Economics.

Writing on his blog Wednesday, Roubini repeated his call that the U.S.
would be in recession in 2007, arguing that the collapse of housing
would bring down the rest of the economy. Read more.

Roubini wrote after the National Association of Realtors reported
Wednesday that sales of existing homes fell 4.1% in July, while inventories
soared to a 13-year high and prices flattened out on a year-over-year
basis. See full story.

'This is the biggest housing slump in the last four or five decades:
every housing indicator is in free fall, including now housing prices.' ­
Nouriel Roubini, Roubini Global Economics

"This is the biggest housing slump in the last four or five decades:
every housing indicator is in free fall, including now housing prices,"
Roubini said. The decline in investment in the housing sector will
exceed the drop in investment when the Nasdaq collapsed in 2000 and 2001, he
said.

And the impact of the bursting of the bubble will affect every
household in America, not just the few people who owned significant shares in
technology companies during the dot-com boom, he said. Prices are
falling even in the Midwest, which never experienced a bubble, "a scary
signal" of how much pain the drop in household wealth could cause.

Roubini is a professor of economics at New York University and was a
senior economist in the White House and the Treasury Department in the
late 1990s. His firm focuses largely on global macroeconomics.

While many economists share Roubini's concerns about imbalances in the
global economy and in the U.S. housing sector, he stands nearly alone
in predicting a recession next year.

Fed watcher Tim Duy called Roubini the "the current archetypical
Eeyore," responding to a comment Dallas Fed President Richard Fisher made
last week in referring to economic pessimists as "Eeyores," after Winnie
the Pooh's grumpy friend.

"By itself this slump is enough to trigger a U.S. recession: its
effects on real residential investment, wealth and consumption, and
employment will be more severe than the tech bust that triggered the 2001
recession," Roubini said.

Housing has accounted, directly and indirectly, for about 30% of
employment growth during this expansion, including employment in retail and
in manufacturing producing consumer goods, he said.

In the past year, consumers spent about $200 billion of the money they
pulled out of their home equity, he estimated. Already, sales of
consumer durables such as cars and furniture have weakened.

"As the housing sector slumps, the job and income and wage losses in
housing will percolate throughout the economy," Roubini said.

Consumers also face high energy prices, higher interest rates, stagnant
wages, negative savings and high debt levels, he noted.

"This is the tipping point for the U.S. consumer and the effects will
be ugly," he said. "Expect the great recession of 2007 to be much
nastier, deeper and more protracted than the 2001 recession."
He also sees many of the same warning signs in other economies,
including some in Europe. End of Story

Rex Nutting is Washington bureau chief of MarketWatch.

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