Greenspan Says U.S. Recession 'Possible, Not Probable'
(Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said a recession in the U.S. is possible, though not probable this year as excess housing inventory is being reduced quickly.
Greenspan spoke in a satellite video link to the CLSA Japan Forum in Tokyo today. His comments came from notes taken by Bernard Key, a former economics professor at Tama University in Tokyo, who attended the event. The comments were confirmed by four other people leaving the event who declined to be identified. The media were barred from the meeting and CLSA would not confirm Greenspan's comments.
``By the end of the year, there is the possibility, but not the probability of the U.S. moving into recession,'' Greenspan said, according to Key's notes. There are specific housing and general inventory excesses that are being addressed quickly, but need to be carefully monitored, he said. Current yield premiums are not sustainable, profit margins are peaking and the U.S. growth cycle is in a mature phase, Greenspan said.
The former Fed chairman said previous experience suggests a flattening of profit margins should produce a recession. He added that globalization of the economy may mean that pattern may not repeat this time, according to a fund manager who attended the speech. Greenspan said three days ago that a U.S. recession was possible this year in part because slowing growth in profit margins suggests the expansion might be winding down, according to the Associated Press.
He acknowledged at the time that most economists aren't predicting a recession. Greenspan's successor, Ben S. Bernanke, told Congress yesterday that the Fed still expects the economy to pick up later this year.
Weakness
Greenspan's remarks earlier this week emerged at a time of weakness in some areas of the economy, including the housing and auto industries, in an expansion that started in 2001.
On Feb. 27, U.S. stocks had their biggest tumble since 2002 after a plunge in Chinese shares sparked a global sell off and raised concern that investors will dump equities after a four- year bull market.
Greenspan today said the relative mildness of this week's fall in equity markets is evidence that financial systems have become better at accommodating shocks, according to one fund manager who attended the talk.
Asked about investment opportunities, Greenspan said that at some stage we'll see a recovery to a more ``normal'' risk spread, according to a trader at today's event.
The trader said he'd heard Greenspan speak three times in the last 12 months and this was the most cautious he'd heard him. The same trader said Greenspan used the words ``mature phase'' three times to describe the U.S. economy and that the repetition of the phrasing was conspicuous.
Bernanke
Yesterday, Bernanke said in congressional testimony that ``there's a reasonable possibility that we'll see some strengthening of the economy sometime during the middle of the year.'' The central bank's outlook is unshaken by a U.S. government report showing the fourth-quarter expansion was slower than previously estimated, Bernanke added.
Bernanke and his colleagues have been mostly upbeat about economic prospects this year, while noting risks from industries such as housing.
The Fed has said over the past month that the housing market may be bottoming, and San Francisco Fed President Janet Yellen said repeatedly in January that the job market was going ``gangbusters.''
Most forecasters consider that a recession is possible, though chances are ``pretty low,'' Wachovia Corp. chief economist John Silvia, who helps run a quarterly survey of business economists, said in an interview on Feb. 27.
Since retiring in January 2006, Greenspan, 80, has been working on a book, ``The Age of Turbulence,'' and speaking to companies and business groups. The New York Times reported last March that Penguin Press, part of Pearson Plc, paid Greenspan at least $8.5 million for the rights to the book, which is scheduled for a Sept. 17 release.
To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Kiyori Ueno in Tokyo at kueno2@bloomberg.net
Greenspan spoke in a satellite video link to the CLSA Japan Forum in Tokyo today. His comments came from notes taken by Bernard Key, a former economics professor at Tama University in Tokyo, who attended the event. The comments were confirmed by four other people leaving the event who declined to be identified. The media were barred from the meeting and CLSA would not confirm Greenspan's comments.
``By the end of the year, there is the possibility, but not the probability of the U.S. moving into recession,'' Greenspan said, according to Key's notes. There are specific housing and general inventory excesses that are being addressed quickly, but need to be carefully monitored, he said. Current yield premiums are not sustainable, profit margins are peaking and the U.S. growth cycle is in a mature phase, Greenspan said.
The former Fed chairman said previous experience suggests a flattening of profit margins should produce a recession. He added that globalization of the economy may mean that pattern may not repeat this time, according to a fund manager who attended the speech. Greenspan said three days ago that a U.S. recession was possible this year in part because slowing growth in profit margins suggests the expansion might be winding down, according to the Associated Press.
He acknowledged at the time that most economists aren't predicting a recession. Greenspan's successor, Ben S. Bernanke, told Congress yesterday that the Fed still expects the economy to pick up later this year.
Weakness
Greenspan's remarks earlier this week emerged at a time of weakness in some areas of the economy, including the housing and auto industries, in an expansion that started in 2001.
On Feb. 27, U.S. stocks had their biggest tumble since 2002 after a plunge in Chinese shares sparked a global sell off and raised concern that investors will dump equities after a four- year bull market.
Greenspan today said the relative mildness of this week's fall in equity markets is evidence that financial systems have become better at accommodating shocks, according to one fund manager who attended the talk.
Asked about investment opportunities, Greenspan said that at some stage we'll see a recovery to a more ``normal'' risk spread, according to a trader at today's event.
The trader said he'd heard Greenspan speak three times in the last 12 months and this was the most cautious he'd heard him. The same trader said Greenspan used the words ``mature phase'' three times to describe the U.S. economy and that the repetition of the phrasing was conspicuous.
Bernanke
Yesterday, Bernanke said in congressional testimony that ``there's a reasonable possibility that we'll see some strengthening of the economy sometime during the middle of the year.'' The central bank's outlook is unshaken by a U.S. government report showing the fourth-quarter expansion was slower than previously estimated, Bernanke added.
Bernanke and his colleagues have been mostly upbeat about economic prospects this year, while noting risks from industries such as housing.
The Fed has said over the past month that the housing market may be bottoming, and San Francisco Fed President Janet Yellen said repeatedly in January that the job market was going ``gangbusters.''
Most forecasters consider that a recession is possible, though chances are ``pretty low,'' Wachovia Corp. chief economist John Silvia, who helps run a quarterly survey of business economists, said in an interview on Feb. 27.
Since retiring in January 2006, Greenspan, 80, has been working on a book, ``The Age of Turbulence,'' and speaking to companies and business groups. The New York Times reported last March that Penguin Press, part of Pearson Plc, paid Greenspan at least $8.5 million for the rights to the book, which is scheduled for a Sept. 17 release.
To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Kiyori Ueno in Tokyo at kueno2@bloomberg.net
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