Money-Rx Blog

Bill Conerly is Principal of Portland, Oregon based Conerly Consulting LLC and the author of Businomics, From the Headlines to Your Bottom Line:How to Profit in Any Economic Cycle, Adams Media, April 2007, in which he explains the correlation between business decisions and economic news. He also publishes financial and economic outlook analysis on his blog (http://businomics.typepad.com/).

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About William B. Conerly, Ph.D:
Education:
Ph.D. Economics, Duke University
Undergraduate economics degree, New College.

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Mr. Conerly has appeared on The News Hour with Jim Lehrer, CNN, and CNBC. He also been quoted in the Wall Street Journal, USA Today and other print media. Before starting Conerly Consulting, he was a Vice President at First Interstate Bank. He is chairman of the Cascade Policy Institute, an NCPA senior fellow and also a member of the Council of Economic Advisors for Oregon Governor Ted Kulongoski.

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Editor's Note: The NCPA produces research on private sector solutions to public policy problems. Bill Conerly is a senior fellow at the NCPA. More importantly, he has decades of experience advising corporate clients. I contacted him to get his views on the state of the economy and recession fears. Published below are Bill Conerly's comments on these matters.

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Let’s revisit the risk of recession. The economics profession is now talking about one chance in three that a recession will begin in the next 12 months. I’m still a bit more optimistic, but just by a touch. I’d say one chance in four.

Up until August, most of us forecasters were thinking the risk of recession was 20 to 25 percent, or one chance in four or five. The key driver of a possible recession was spillover of the housing market weakness into consumer spending. The story of risk was told along these lines: if consumers see that their homes are not appreciating, or are actually depreciating, they will cut back on their spending. Without home appreciation fueling gains in their net worth, they will start saving.

What we actually saw was consumers continuing to grow their spending, but at a lower growth rate. We enjoyed the mild form of the consumer spending effect, which would not trigger recession.

But in recent months, the risky story has changed. The key issue now is financial markets. We know that risky securities are not selling well at all. Some have said that the price of risk has permanently risen. Well, not much is permanent in this world; that’s been my experience. But I’ll buy that people accepting risk want a higher reward today than they did a year ago. But, we’re not going back to the 1960s, when stocks were considered too risky for widows and orphans. We are not going back to 1990, when construction finance was simply unavailable at any price. We are not going back to the Russian bond default of 1998, which came on the heels of the Asian Financial crisis. We are going back to about 2004.

Risk is not being shunned completely. Instead, investors are shying away from known problem areas—like residential subprime—and they are asking for a decent reward for shouldering risk. But, … they are NOT absolutely avoiding risk.

Going forward, the economy watcher should look for signs that the subprime crisis is spilling over into other prime credit markets. For instance, if we see evidence that prime commercial borrowers are being dumped by their banks, or that consumers with good credit can no longer get car loans, then we’ve got a recession coming. But I have not seen those signs right now, so I’m in the optimistic camp.

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That was William B. Conerly, author of Businomics and Principal of Conerly Consulting, LLC.