MercoPress. South Atlantic News Agency

Greenspan says the US is “in or about to enter a recession”

Mr. Alan Grennspan

United States is probably in or about to enter a recession, former Federal Reserve Chairman Alan Greenspan said in an interview with The Wall Street Journal. The odds are “not overwhelming but they are marginally in that direction” of recession.

"The symptoms are clearly there. Recessions don't happen smoothly. They are usually signaled by a discontinuity in the market place, and the data of recent weeks could very well be characterized in that manner," he added. He specifically referred to a drop in the Institute for Supply Management's purchasing managers' index to 47.7 in December after several months just above 50, the dividing line between expanding and contracting manufacturing activity. While "by no means conclusive ... [that] is the type of thing, if we were going into recession, we'd observe." Another sign, he said, was the jump in the unemployment rate to 5% in December from 4.7% in November. Greenspan first publicly raised the possibility of recession in February last year, and put the odds at about 33%. He said in mid-December the odds had risen to about 50%. On Monday he said the odds were still close to 50% but "more likely higher than lower". Mr. Greenspan saw a glimmer of hope in the housing market, saying new-home sales may have bottomed because the number of purchases financed by subprime and Alt-A mortgages -- a category between subprime and prime -- has fallen to zero. But bloated inventories mean housing construction and prices are still bound to fall, he said The interview coincided with the news that Greenspan was signing as an adviser to hedge-fund firm Paulson & Co. Greenspan in recent months has signed similar agreements with Pacific Investment Management Corporation (PIMCO), a bond specialist, and with the German banking giant Deutsche Bank. Greenspan, whose views remain closely followed by the financial markets, left the US central bank post after 18 years in January 2006 and has created his own consulting firm, Greenspan & Associates, Inc. However a growing number of critics of Greenspan's tenure at the Fed say the central bank failed to adequately monitor lending practices amid a years-long housing boom.