Merrill: Recession is already here



The US has entered its first full-blown economic recession in 16 years, according to investment bank Merrill Lynch.

Merrill, itself one of Wall Street’s biggest casualties of the sub-prime crisis, is the first major bank to declare that a recession in the world’s biggest economy is now underway.    

US Treasury Secretary Hank Paulson has admitted that the US economy faces severe challenges David Rosenberg, the bank’s chief North American economist, argues that a weakening employment picture and declining retail sales signal the economy has tipped into its first month of recession.

Mr Rosenberg, who is well-respected on Wall Street, argues: "According to our analysis, this [recession] isn’t even a forecast any more but is a present day reality."

That’s a slight overstatement. What I believe Rosenberg is saying is that, based upon the unemployment data, a recession is now unavoidable.


In a related note, Bill King reminds us that the President and Fed Chair get the Employment Report at 17:00 (5pm EST) on the day before the report is released. This means that Bush called the meeting minutes after seeing the report. 

24 minutes later, Bloomberg carried this story:

"President George W. Bush will meet with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke tomorrow as he considers  whether to announce a new economic stimulus package amid slowing growth. Bush will speak to reporters tomorrow after a 1 p.m. meeting at the White House with members of the  President’s Working Group on Financial Markets, press secretary Dana Perino said today. 

The quick and somewhat panicked reaction was an attempt to get ahead of the story, but events moved too fast; Markets did not respond positively.


Also of note:  Portfolio’s Felix Salmon notes that Treasury Secretary Hank Paulson "seems to be channelling Nouriel Roubini" in "one of the most bearish speeches by a sitting finance minister I have ever read."


Oh, and Paulson will be guest-hosting CNBC’s Squawk Box this morning.

Food for thought: Regardless of your politics, one must be amazed at all the professional reputations that have taken a toll by serving in this White House. Has anyone escaped this administration with their reputation intact?

I wonder: Is Hank Paulson now trying to salvage his increasingly damaged reputation?


US recession is already here, warns Merrill
James Quinn
Telegraph, 12:05am GMT 08/01/2008

Bush to Meet Advisers as Stimulus Package Considered
Roger Runningen and Holly Rosenkrantz
Bloomberg, Jan. 3 2008

Paulson’s Most Bearish Speech Ever   
MARKET MOVERS, Jan 7 2008 5:13pm EST

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What's been said:

Discussions found on the web:
  1. DavidB commented on Jan 8

    That’s what you get for the betraying of fiscally conservative Christian Republicans that voted for you once you are in office. They pray you up some consequences. The Dems never have to worry about that

  2. Eric Davis commented on Jan 8

    …I’d take issue Partisan that anyone with a reputation, agreed to serve that administration. Those with integrity resigned in the first year, when policies were seen as irrational, and most positions were filled with Yes men….

    but I’m partisan as all hell. I guess Paulson breaks that mold, he does seem to be doing it to feed his ego a bit, but maybe his heart is in the right place(regardless of his actions)….

    But, I just think it feeds the Thesis that The Reserve and the Treasury, are ready to serve up some pain to the Banks. Besides the Moral hazard of the Greenspan Proactive “Cuts”, I think they see the Moral hazard of letting the banks get away without any accountability, every-time they act in Irresponsible ways, the sinking our economy. Walking away like the King Cocks in the Hen house.

    That is what I’d like to think!

  3. mhm commented on Jan 8

    “Has anyone escaped this administration with their reputation intact?”

    Only those who jumped ship before the Iraq stupidity started. Nobody was forced to stay, maybe asked to but not forced. They have themselves to blame.

  4. Eric Davis commented on Jan 8

    OT: KBH KB homes

    The Company’s 2007 fourth quarter cancellation rate of 58% was unchanged from that of the year-earlier quarter but was higher than the 50% rate reported in the 2007 third quarter.

  5. Will Rahal commented on Jan 8

    Looks like Merrril Lynch took my analysis and ran with it.
    They should at least give me credit!!
    I had posted a while ago
    “Accelerated Economic Deterioration” and
    “Unemployment Threshold”
    using the change in the Unemployment Rate.

  6. Paul Jones commented on Jan 8

    The key to avoiding a huge downward spiral is to force the creditors to revalue their loans downward to a point that people can afford to pay in the traditional way.

    The alternative for the banks is for debtors underwater to just default. They shouldn’t want that but maybe they feel they will get a government bailout so they don’t want to set any precedents here.

  7. Mr. Obvious commented on Jan 8

    I don’t at all disagree with ML or others hiking odds of recession. In my relatively short investments career, however, I don’t remember this many on Wall Street calling for recession so early. Have they learned from past mistakes or is something else amiss? I suspect the “so early” part may be the problem. Maybe it’s later than it seems. Thoughts? I await your smackdown.

  8. dblwyo commented on Jan 8

    Let’s not get too carried away here on several fronts. Paulson likely didn’t know and grossly under-estimated what he was getting into. And mis-calculated the timeframe, intractabilities and inertias he’d face. For example he’s pushing a wet noodle up a hill to jawbone the Chinese on the Yuan when their own domestic economy is so fragile to declines in growth. Someone of Paulson’s stature should have been brought in in the beginning and taught how the world works.
    Several years ago a friend and I both sat on World Bank panels trying to explain business and logistics and the role in development. As we left that day he sneered deeply and comprehensively about bureaucrats and what wasted, futile folks they were. Ten years later he took a job as Dep. Asst. Secy at DoD to revamp their logistics operations and spent four frustrating years bouncing against the inertia, barriers and political constraints.
    These jobs are really tough. Be glad we can persuade good people to tackle them from time-to-time and that they enjoy occasional moments of successes. And pick the candidate this time who you think has a better grasp on how this works.

  9. Ross commented on Jan 8

    Don’t have a dog in this fight. Haven’t voted since Nixon/Agnew. Seems to me it is all about power. We have blatant crony capitalism. The Fed is reactionary and clueless. They FOLLOW markets. Deragulation has taken away their ability to disintermediate the markets. The demise of Glass/Steagal was a big mistake. We will see reregulation for at least the next 25 years.
    Recessions are natural. We have a finance crisis. Best way out is to nationalize the week financial players, wipe out the equity, recapitalize the institutions and sell them back into the markets. A fair solution on all sides.
    Get a chair before the music stops.

  10. John commented on Jan 8

    It was always a bit of mystery to me why Paulson signed aboard this water logged craft. If I remember he took some time to make up his minde so he was probably uneasy to start with. He’s obviously got more clout than any previous Treasury Sec but no where near as much in his realm as Gates. That said his options were limited domestically because essentially the die was cast by the fiscal and monetary policies of the past seven years. Internationally he seems to see his main taks as heading off protectionism and that may be indeed why he originally took the job. His jawboning of the Chinese over the Yuan has been a conspicuous failure. There’s little doubt we’re heading into a recession or a slow down that’s going to feel like a mild one. This is going to be the last nail in the Republican coffin if it happens. As for Bush himself he’s become a total irrelevance making domestic speeches no one listens to and jetting of to places where guys in elaborate head dresses listen politely, smile, share sheeps eyes and wait for him to leave. This guy is really worse than Carter. I never thought I’d say it but it’s true.

  11. gary commented on Jan 8

    I think the market started to discount the recession in July and Aug. but the Fed flooded the system with liquidity and postponed the decline. Interestingly enough once the dollar broke through long term support the increased liquidity failed to raise the markets further and just ended up leaking into the commodity markets. I added some charts to the SMT that illustrate my point

  12. Neal commented on Jan 8


    Today (Monday)aboard Air Force One, a reporter asked presidential spokesman Tony Fratto if the Bush administration was at all worried about a recession, given that on Friday, Sen. Hillary Clinton (D-NY) said she “think[s] the economy is slipping toward recession.” Fratto brushed aside such concerns:

    QUESTION: Senator Clinton said on Saturday that the U.S. economy was slipping towards a recession. Is that a view the White House shares; why or why not?

    FRATTO: I don’t know of anyone predicting a recession.
    A reporter later followed-up and asked Fratto about Feldstein’s statements. Fratto dismisses Feldstein, saying the former chairman of Reagan’s Council of Economic Advisers was guilty of “prognosticating.” “Well, even that isn’t a firm prediction,” said Fratto.

    (end quote)

    See, it’s all OK.

  13. TKL commented on Jan 8

    I’m no optimist about the current situation, but the chart shows five or six times when the unemployment rate rose sharply — easily more than 0.6% — without presaging recession. So what’s with this “100% of the time” pitch? How can somebody say that, provide a chart that plainly shows otherwise, and get away with it?

    As for what Rosenberg really meant, it’s impossible to intepret “not even a forecast anymore but . . . a present day reality” to be anything other than a declaration that a recession has begun.

  14. michael schumacher commented on Jan 8

    These people are just different than us in so much as the rules are VERY different. All they have to do is get away from the administration, write a book, and apologize. Then some multi-national conglomerate will hire them and they sail off into the sunset with more money (mostly).

    Bush has seen that we are a nation of apologists when things don’t go to plan.

    As far as Paulson not knowing? Come on… he personally presided over the enrichment of GS ( and himself FTM) during the same time period. They all knew…but it’s easier to say that they did’nt know so that they appear just like you and I. The big difference is that none of these people will ever have seen a consequence of those p[oor decisions. While you and I get to see it play out each day.

    Screw them..they built it now they can fix it. Reputation? who cares it does’nt matter.


  15. TKL commented on Jan 8

    Oops, sorry about the first part of that last post. Likes like it really has been “100% of the time”. I initially missed the distinction between the absolute number and the positive number — between decelerating decreases in unemployment and actual increases.

    Sorry y’all.

  16. mh497 commented on Jan 8

    The reality is that Greenspan put us in this box, and ultimately history will figure that out.

    Given what he’s got to work with, and given the realities of the job, Paulson is doing a reasonable job; I thnk his reputation is gonna be fine.

  17. cinefoz commented on Jan 8

    As much as I would like to pile on and scream “The Recession Is Coming”, I can’t. Recession is the new ‘supply side speak’ for lower taxes now. To the red meat Republican supply sider, lowering taxes is the equivalent of saying it is time to break out the national credit card and live on borrowed money a while longer. Somebody else will have to pay the bill long after the screaming babies are dead and gone.

    This is sad. The original concept of supply side economics is to base fiscal policy on the best way to increase Investment. Lowering taxes in strategic ways is one tool. Increasing Investment adds jobs and creates incentives for people to get educations.

    The current perversion called supply side economics is nothing more than a ploy to get free money from the government to spend on whatever. Or, to put it in economic terms, Consumption is favored over Investment, with the hope that additional government deficit will somehow create a pool of capital via the invisible hand.

    But a slowdown is here because Consumption will now now be financed by Income, rather than by Savings and inflated asset values. There will be no way to avoid pain, so a minimize the maximum loss strategy will be required. Lower rates, a sense of stability, and time will provide a good base. Foreign economy expansion will help bail us out by making the US a larger exporter.

  18. John Borchers commented on Jan 8


    In Bush’s speech yesterday he used the words, “we had 52 months of job growth”

    Key word ‘HAD’, past tense

    He knew what was in the report yesterday. Short ahead of time. It’s not good news.

  19. larry commented on Jan 8

    Paulsen got an approx $167 million tax break by taking the job. Believe that he thought he could put up with this crowd for that. Obviously, he is rethinking. However, he supports my thesis on the dumbing down of America. As the head of GS, he could not see the credit crisis coming, could not divine that ultra low interest rates would create ultra problems, etc. He could not divine that the Cabinet only exists to clean up the messes for the White House and please no policy advice please as we are doing just fine. Did everyone think that O’Niell was crazy?

  20. michael schumacher commented on Jan 8

    what Larry is referring to is that Paulson sold his Goldman stock (at the top.. no coincidence there!-people wondered why he took so long to decide…look at GS chart from the offer to his start date) without any taxes.

    The rub is that most of that stock was based on all the crap they pushed out during that time period that they have now decided there is “no easy solution to” now.

    Nice work if you can get it…


  21. Ignatius J. Reilly commented on Jan 8

    Regarding White House reputations reminds me of the old joke almost 40 years ago. “Don’t tell people I work for the Nixon White House. They think I am working as piano player in a whorehouse.

  22. VJ commented on Jan 8

    Regardless of your politics, one must be amazed at all the professional reputations that have taken a toll by serving in this White House … I wonder: Is Hank Paulson now trying to salvage his increasingly damaged reputation?

    Won’t work.

    As even with the likes of Colin Powell, they won’t be able to get the stink off.

  23. VJ commented on Jan 8


    In Bush’s speech yesterday he used the words, ‘we had 52 months of job growth’. Key word ‘HAD’, past tense

    Actually, the missing key word was ‘negative‘.

    They had 52 months of NEGATIVE job growth.

  24. larry commented on Jan 8


    He did sell at the top but also received the $166 millionj tax break due to a rule that allows people to go to gov and not be penalized by the divesture requirements. Therefore he escaped taxes on the “forced sell”. I do not recall a thank you.


  25. John Borchers commented on Jan 8

    I think a few of our US banks are bankrupt. Sad to say it even though many professionals are short and are going to make a ton of money.

  26. Financial Armageddon commented on Jan 8

    Reality Comes to Wall Street

    The evidence of an impending U.S. recession has been building for months, but most of the Wall Street crowd has been ignoring (or denying) it. Still, there have been some exceptions. One is Merrill Lynch economist David Rosenberg, who seems

  27. donna commented on Jan 8

    I think one’s “reputation” would be in question if one were even ASKED to serve in this administration. They seem to be incapable of doing anything right at all.

  28. L’Emmerdeur commented on Jan 8

    Paulson is there to guide administration policy for Mother Goldman. He is taking one for the team.

  29. Pat Gorup commented on Jan 8

    “That’s a slight overstatement. What I believe Rosenberg is saying is that, based upon the unemployment data, a recession is now unavoidable.”

    I believe Rosenberg is right and you’re still in denial.

  30. PTodd commented on Jan 8

    They all laugh about their reputations on the way to the bank. Everyone in this administration has made a pile of dough. A pile. Since the powers that be have decided a Dem will be the next President, this Administration can rape whats left of the economy and leave the Dems a disaster. History repeats. Look out below.

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