About that Economic Slowdown

Another sign of the slowing economy: a sharp drop in retail sales in September. Here's the news from AP:

The Commerce Department reported Wednesday retail sales decreased 1.2 percent last month, nearly double the 0.7 percent drop that had been expected. It was the biggest decline since retail sales fell by 1.4 percent in August 2005.


The bigger-than-expected decline significantly increased the risks of a recession because consumer spending is two-thirds of total economic activity.

How big will this recession be? How long will it last, and what will the economy look like on the other side? Venture capitalist Paul Kedrosky offers his predictions, which include:

• "The unwinding of all this credit bubble will take longer than most people expect, and the damage will continue to be broader than most expect. Beyond banks and financial institutions, it will include many municipalities, some large-cap tech names reliant on major debt-financed network buildouts, a host of debt-financed non-financial companies, and some sovereign nations. Total cost: Bridgewater's $2.7-trillion looks close enough to me .
  
• We are already in a recession that will last well into the the fourth quarter of next year.
  
• Unemployment may touch 9% in the U.S. at trough.
  
• Housing will fall 10-15% further in U.S., and we are only beginning major declines in Canada, U.K., Australia, and elsewhere.
  
• U.S. consumers will become much more aggressive savers, both through debt reduction and direct saving. Similarly, future fiscal stimulus will largely be saved in service of this overdue need to fix domestic balance sheets.
  
• Commodities will stay under pressure for the next two years,and then reverse savagely as developed countries emerge from recession at very similar times. We have newly resynchronized the global economies, which will have immense consequences.
  
• Coming out the other side, we will see a barbell economy, with growth and investor interest at the mega-cap consolidator end, and at the entrepreneurial smaller end. The latter will be driven by major developments in clean technology, in particular, which was just given a two-year window to gestate before the major economies worldwide turn higher and begin driving energy prices straight up."
  

Read more of Paul Kedrosky's analysis here.