Bearish Turn in U.S. Economic Statistics

The trend in the tone of news about the U.S. economy seems to fluctuate from month to month. After having been mostly bearish in December, and mostly bullish in January, they have again turned mostly bearish in February, as arch-bear Nouriel Roubini pointed out yesterday. And today's report on housing starts and building permits further confirms this bearish picture.

Part of this reflects colder weather. Part of it reflects that the fact the unexpectedly strong U.S. GDP number, now appears to have been false, as inventories, net exports and private consumption all are likely to be downwardly revised. Instead it now seems more likely to land near the 2% or slightly above 2% that I predicted in mid January.

With this bearish turn in the tone of economic statistics, the recovery in oil prices, the slowing of corporate profits growth and money supply growth, the risk of a 2007 recession have increased significantly. I still think it is below 50% (although it is certainly closer to 50% than 0%). Instead, the most likely scenario is still a continuation of the weak but still positive growth, we've seen for the last few quarters.