SOURCE: Milken Institute

Milken Institute

August 12, 2011 05:30 ET

New View From Milken Institute on Likelihood of Recession, Jobs Forecast, Econ POV on Debt, S&P

SANTA MONICA, CA--(Marketwire - Aug 12, 2011) - The Milken Institute has just posted a paper by Ross DeVol, our chief research officer, titled, "Deficits, Debt and the Downgrade: Implications for Financial Markets and the U.S. and World Economies." Summary points are below. See the paper at http://bit.ly/pSu1td

While the criticism of S&P is not new, Ross is thorough in examining the rating agency's errors and concludes with his view of the probability of recession and forecasts what job growth will be in the coming months.

About "Deficits, Debt and the Downgrade"
Was Standard & Poor's justified in downgrading the U.S. credit rating to AA+ from AAA? Not at this point, says Ross DeVol, the Milken Institute's chief research officer, in an analysis released today.

The rating agency's $2 trillion mistake has rattled markets and called into question the safety of U.S. Treasurys. It has also raised further doubts about the rating agency's credibility. DeVol points out that a key measure of future solvency shows the United States' prospects are superior to those of Germany, France, the U.K., Canada and Australia -- all of which S&P rates AAA. And don't forget that S&P's involvement in rating mortgage-backed securities contributed to the financial crisis.

But with the rating downgrade already done, what's ahead for the jumpy financial markets and economies at home and abroad?

  • Real GDP growth: DeVol predicts real GDP growth in the U.S. at around 2.0 percent in the second half of 2011 and 1.8 percent for the year.
  • Economic growth: He forecasts U.S. growth at 2.9 percent in 2012.
  • Job creation: Expect job gains of roughly 80,000 per month in the third quarter, 100,000 per month in the fourth quarter and 125,000 per month in 2012.
  • Double-dip recession: The probability is 35 percent if equity market valuations remain in today's range.

Contact Information

  • Contact:
    Jeff Monford
    Interim Director of Communications
    The Milken Institute
    O 310-570-4623
    M 718-809-3405