Heading into recession?

Are the economy's good times about to end? Some economists are pessimistic while others say that the trends point more to a moderation of the economy. Even if a recession isn't in our near future, a slowing economy could have implications for those in the green industry.

According to researchers at Economy.com's website, “The Dismal Scientist,” recessions occur when the economy has significant imbalances that undermine confidence. The economy has had significant imbalances recently, including high energy prices and the resultant decrease in consumer spending. The researchers report that the gross domestic product (GDP) experienced its weakest gain since 1995 of only 1.4 percent, indicating that the pace of economic growth is decreasing.

While the economy may be slowing, researchers at Economy.com say the country can still avoid a recession. They point to the latest U.S. Index of Leading Economic Indicators, shown in Figure 1. The index is an average of 10 economic factors such as money supply, building permits and consumer confidence. In January, the index rose by 0.8 percent after three months of declines. According to the researchers, two conditions must exist to indicate a recession. First, the index must decline over three consecutive months. Second, the index must decline at least 3.5 percent over six months. While the first condition was met, the second condition was not.

Although the overall index rose in January, a major factor, consumer confidence, fell. According to Businessweek.com, the consumer confidence index fell from 115.7 in January to 106.8 in February (see Figure 2). The Conference Board, the private research group that performed the study, says even though the index dropped significantly, it is still above recession levels.

Even if we avoid a recession, an economic slowdown may lead to changes in new construction for the green industry. According to Robert A. Murray, vice president of economic affairs for F.W. Dodge, “The slowing economy and tighter lending conditions in 2001 will make it difficult for the construction industry to see another year of expansion.” However, he says those in construction-related industries have reason to remain optimistic. “There's a strong likelihood that construction will be able to remain close to the elevated volume achieved in 2000. While some weakening is expected for single-family housing and commercial building, the public-works sector should see further growth due to increased federal funding, and institutional building will remain healthy given the continued strength of school construction.”

Sources: www.dismal.com; www.fwdodge.com; www.businessweek.com

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