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History Shows US Headed For Recession: Investor

The current low rate of GDP (gross domestic product) growth in the United States indicates that the world's largest economy is headed for another recession, according to Anthony Doyle, director of investment specialists, M&G Investments.

Recession-themed newsprint cuttings
Recession-themed newsprint cuttings

The self-described "bond vigilantes" pointed out that when US GDP growth falls below 2 percent, it usually means that a recession is not far away.

The US economy grew by just 1.6 percent in the second quarter of 2011, according to official figures released last week.

Investors have also been spooked this week by Institute of Supply Management (ISM) data showing that its manufacturing index read 50.9 in July, barely above the 50 mark that separates expansion from contraction, and new orders contracted for the first time in two years.

The last US recession lasted 18 months, the longest since World War II, according to the National Bureau of Economic Research.

The respected research body said the last recession began in 2007, and the recovery did not start until June 2009.

"Combined with yesterday’s much weaker than expected ISM report and an unemployment rate at 9.2 percent, it suggests that the US Federal Reserve won’t be in any rush to hike interest rates this year," Doyle wrote in a note.

"Fed Governor Ben Bernanke may even be warming up the printing press if US employment and growth outcomes don’t start to improve – and quickly."

The US debt crisis appears to have been resolved temporarily, with the Senate voting later Tuesday on a bill to raise the debt ceiling put through by the House of Representatives Monday night.

Politicians and economists are still warning that the deal will not solve all the country's economic ills.

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