U.S. Recession Starts Now, Economist Says at Auto Conference

It hasn't been officially declared, but the U.S. economy is now entering a recession, said an economist at the Auto Industry Hot Topics Conference here on Sept. 18.

"The economy has moved into recession," said David Wyss, chief economist for Standard & Poor's, which co-sponsored the conference with J.D. Power and Associates. "The recession should be mild because of the fiscal monetary stimulus -- but probably long," Wyss said.

A deeper recession is also possible if financial markets remain locked up, if oil prices rise, and if home prices continue to drop, Wyss said in a presentation.

A recession is usually technically defined as two consecutive quarters of negative growth in the gross domestic product. That hasn't happened yet.

In fact, the federal Bureau of Economic Analysis said on Aug 28 in a preliminary report that the real gross domestic product in the United States grew at an annual rate of 3.3 percent in the second quarter of 2008, versus only 0.9 percent in the first quarter. So if anything, GDP improved as of the latest official measurement.

But that was before this week's stock market gyrations, and Lehman Brothers filing for bankruptcy protection on Sept. 15, generating fears that Lehman Brothers won't be the last domino to fall in the credit crisis.

Consumer spending was powering the U.S. economy, but Wyss said personal wealth is down because home prices declined, stocks are weak, borrowing is more difficult, and home equity loans are much less available. As a result, consumer confidence has dropped, so consumers are unlikely to keep spending like they were.

Robert Schnorbus, chief economist for J.D. Power, said the U.S. auto industry has already been in a recession for a while now, but a recession in the larger U.S. economy will of course hurt auto sales even more.

"The economy is important, but whether the economy is in a recession is not necessarily the most important question. The auto sector already is in a recession. But the factors in the larger economy are having the impact you would expect to see on the auto industry," he said.

Credit availability is a key question. "The auto industry as a whole is a very credit-intensive one," said Gregg Lemos Stein, a Standard & Poor's associate director. "You've got consumers financing their purchase, you've got dealers financing their inventory, and you've got the auto finance companies that need access to funding through asset-backed markets. It tends to be a downward cycle, as credit markets get tougher," he said.

Schnorbus said he's particularly worried about the willingness of banks to loan money to auto lenders, and through them to consumers. "You can't sell them if you can't finance them," he said.