Monday, December 10, 2007

Forthcoming U.S recession

Recession (n): A significant decline in the economic activity spread across the economy, lasting more than a few months.

The Indian economy has been largely dependent on the U.S markets in the recent past. A recession in the U.S can mean a grave problem to the Indian government along with its private players. The so fortunate I.T consulting can be driven to naked oblivion.

No doubt, Asia is a big market but its size is no match to the U.S behemoth in India's case. There has been as many as seven recessions in the U.S economy from 1965 to 2005. So are there any innovative methods to forecast the recession in advance so that alteration in business policies and shift in market strategies can be implemented to nullify the impact as much as possible. The answer is an emphatic "Yes".

The model developed for this purpose is called ILI (Index of leading indicators).It consists of the following factors:

1) Number of orders received by manufacturers of consumer goods.

2) Number of orders received by manufacturers of capital goods excluding defence requirements: Defence costs remain independent of recession.

3) Housing property reselling and leases

4) S&P 500 Index.

5) Inversion of the yield curve: This happens when the returns on a short term basis exceeds returns on a long-term basis.

6) Consumer Sentiments

The GDP of the U.S has shown a 3.6% rise in the second quarter as opposed to 0.6% in the first. The power sectors are doing well. The surging oil prices has done its fair bit in ameliorating the situation. Lat but not the least, the Federal Reserve has made the cut by 50 basis points as opposed to market forecast of 25. It shows the U.S is keen to avert any recession in near future.

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