Economist: Market volatility spurred by recession fears
Market volatility will continue as investors react to each new political and financial event as a potential catalyst for economic recession, said economist Gene Stanaland at the 71st annual meeting of the Independent Petroleum Association of America here Friday morning.
SAN ANTONIO, TEX.�Market volatility will continue as investors react to each new political and financial event as a potential catalyst for economic recession, said economist Gene Stanaland at the 71st annual meeting of the Independent Petroleum Association of America here Friday morning.
Former market parameters no longer seem to work in today's changing economy. So the event that triggers the recession that finally ends this unprecedented period of US economic growth will likely be "something we've not seen before," said Stanaland, former head of Auburn University's economic department, who now heads his own consulting firm.
This country has experienced only 9 months of recession since 1982 and has enjoyed moderate economic growth since 1991, he said. Many are convinced that the economy is long overdue for a reversal.
"Traditionally, recessions are triggered by too much spending," said Stanaland. But today's consumers seem to buy everything, almost regardless of whether prices rise or fall, and still demand more.
Some expect heavy consumer spending to keep driving the economy until 2008 when the "baby-boomer" generation starts to retire.
Meanwhile, Stanaland said, "No one knows what the parameters of the new economy are." So investors are likely to knee-jerk automatically to any new political or economic event out of fear that "this is it"�the recession trigger.
High energy prices could trigger a recession. But oil prices probably would have to hit a level of $40-$50/bbl before that would occur, Stanaland said.
The amount of oil necessary to spur growth of the gross national product in the United States and other major consumer nations is much less now than a few years ago. So high energy prices have more impact on emerging countries that are still tied to the "old" economy.
In fact, higher energy prices in this country have probably helped the Federal Reserve Bank's economic strategy by siphoning off some "excess" cash, Stanaland said.
But once oil gets above $30/bbl, he said, "Damned if it doesn't become profitable to go find some."
That poses a dilemma for members of the Organization of Petroleum Exporting Countries who need the increased cash flow to repair their damaged economies.
They don't want to overreact and risk pushing oil prices fall back to $10/bbl again. But if they wait too long, they also risk losing markets to new non-OPEC production, said Stanaland.