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A New Recession Seems Inevitable
Feb 25, 2012

Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, said on Friday that his research firm is sticking with the forecast it made in September:

A new recession is inevitable, despite improvement in high-profile economic indicators, such as job creation and unemployment, and a stock market rally.

ECRI is one of the more widely respected firms on economic recessions, as it has never been wrong when forecasting that a recession would start, or failed to predict a recession well before it was widely accepted.

Achuthan predicts the recession will happen even without a new shock to the economy, such as a spike in oil and gas prices or a Greek sovereign debt default sparking a financial meltdown.

If those things occur, he says they will simply make an inevitable recession more painful.

In fact, Achuthan said data gathered since his September forecast only confirms his view that economic growth has slowed to such a degree that a downturn is now unavoidable, likely by late summer.

Even ECRI's own leading indicators have been showing steady improvement since October.

"Job growth always follows consumer spending growth, not the other way around," Achuthan said.

That doesn't necessarily mean the economy will start losing jobs again by this summer, when he expects the recession to start.

He said hiring can continue in the early months of a downturn, but there will definitely be job losses ahead.

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Recession, depression, and then recession in depression?:

Recession risk unless oil prices fall further
8/12/2011

The warning signal flashing is what economists call the “oil expense indicator”: the share of oil expenses as a proportion of worldwide gross domestic product (GDP) — oil prices times oil consumption divided by world GDP.

Since 1965, this has averaged roughly 3 percent of GDP, and it has only exceeded 4.5 percent during three periods: in 1974, between 1979 and 1985 and in 2008.

Each period has seen severe global recessions.

If it (oil) is too high for too long, the results are dramatic.

Using the oil expense indicator, economists say Brent crude, the international oil benchmark, would need to be in the low $90s per barrel to be under the 4.5 percent danger mark.

In fact, Brent hit a two-and-a-half-year high of more than $127 per barrel in April and...has been over $100 for six months.

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Yes, lower natural gas prices will partially offset higher oil prices.

U.S. Energy Consumption by Source - 2009 (total = 94.578 quadrillion btu)

Petroleum 37%
Natural Gas 25%
Coal 21%
Nuclear Electric Power 9%
Renewable Energy 8%

(Renewable Energy: Hydropower - 35%, Wood - 24%, Biofuels - 20%, Wind - 9%, Biomass Waste - 6%, Geothermal - 5%, Solar - 1%)

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Chart - Crude Oil Prices vs. Natural Gas Prices:

http://1.bp.blogspot.com/-u1WxDqwMz8g/T0mJaoyVuOI/AAAAAAAAQ60/wB4K4NBYaEE/s1600/gasoil.jpg

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PeakTrader said...

Will natural gas prices begin to rise?

UNG - United States Natural Gas Fund ETF - shows after a 4-for-1 reverse stock split recently (to prevent it from falling below $5 a share) peaked in 2008 above $500 a share, and closed Friday a little over $21 a share.

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Natural gas production has been a by-product of fracking.

If a recession begins later this year, oil prices will fall below $50 a barrel and there will be less natural gas production.

Also, utilities are shifting from coal to natural gas, while there's also a shift from crude oil to natural gas.

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Update (one week later - UNG fell from over 21 to below 20):

The abundance of natural gas is reflected in the UNG ETF (United States Natural Gas Fund), which fell from over $500 a share in 2008 to less than $20 a share today (and even exceeded the lowered $33 a share bearish price objective on the point & figure chart).