Economist: recession coming, but not this year

Economist Karin Kimbrough believes the U.S. economy is too solid to be drawn into a recession in 2016, but that we are in the middle of a manufacturing recession.

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By Brad Kane

The troubling worldwide signals of a potential recession are more smoke than fire and are unlikely to lead to a U.S. recession in 2016, according to an economist speaking Thursday in Worcester.

"When people ask me if we are going to have a recession, I say, 'Eventually, but not this year, maybe 2017 or beyond,'" said Karin Kimbrough, managing director and head of macro and economic policy, investment management and guidance for Bank of America Merrill Lynch.

Kimbrough made these assertions about the health of the U.S. economy Thursday morning at Economic Forecast event at the Beechwood Hotel put on by the Worcester Business Journal and the Worcester Regional Chamber of Commerce.

Although the downturn in the Chinese economy, falling oil prices and the global economic outlook are causing unease in the U.S. markets, Kimbrough said this is more of an overreaction by certain market players rather than the beginning of a recession.

"All that uncertainty is creating volatility, particularly in equity markets," Kimbrough said. "It is overblown. It is not based on fundamentals at all."

The Chinese economy is going through a transition to a more service-based economy -- like U.S. did -- and it is having some growing pains, especially because of the government controls and lack of transparency in China. Kimbrough said. While this will have a ripple effect, the impact on the U.S. economy will be minimal, since the two nation's economies don't have that many linkages.

"What China is doing is pretty cool. It is basically what we did," Kimbrough said. "They are trying to make a broad transition to be a global player."

The U.S. economy is too solid to be rattled, Kimbrough said. The economy is still 60 percent based upon consumer spending, and consumers continue to deliver and have less of their income taken up by debt than when the Great Recession hit.

U.S. companies still are hoarding capital as a precautionary measure, Kimbrough said, which has led to a slump in production.

"The elephant in the room is that we are in a manufacturing recession," Kimbrough said.

She added the manufacturing recession won't have as big of an impact on the economy since it doesn't make up the same percentage of the U.S. economy as it once did.