A short, sharp recession due, but we're a safer bet

Is recession coming? Yes for the US; no for Australia, with rate cuts to come.

The US votes tonight in the shadow of recession. Consumer confidence is at record lows, equity prices are low and house prices are still plunging.

The "China effect" was meant to insulate Australia from major effects. But now the US is thought to be leading Euroland and Japan into recession and China has slowed appreciably.

Commodity prices are down by about 40 per cent, eliminating the bubble effect, perhaps showing some "undershooting" as markets adjust in the opposite direction.

Australian equity prices have fallen by about the same amount in percentage terms as Wall Street, Australian house prices are falling and consumer confidence is falling.

The graph on page 26 compares US and Australian consumer confidence. The data has been compiled since 1973 for Australia by Roy Morgan Research and by the Conference Board since 1977 for US consumers.

The US measure clearly picked the three US recessions - in the early 1980s, the early 1990s and 2001. The current reading is a record low, suggesting this recession will be severe.

The Australian data shares the gloom of the early 1980s and early 1990s, but conspicuously failed to dip in 2001. Now it is down but not (so far at least) to the depths reached in the earlier recessions.

There is one, more speculative, point to be made in comparing the two series. US consumer confidence appears to be more volatile than Australian consumer confidence. Except for the mini-boom of the mid-1980s, the lows of US confidence were lower and the highs were higher.

Does this perhaps reflect the more flexible, volatile nature of a freer, more innovative US economy?

Many influential people are saying the US is in recession now. This is effectively confirmed by the early estimation of US GDP, which suggests negative growth in the September quarter.

Will the US recession be deep or will it be long? Or could it be both deep and long?