Countervailing Factors to a Deep Recession

Barron's wrote an article (due to be published tomorrow) proclaiming that the recession everybody is anticipating won't be as bad as many in the media think.

Here is the article.

Update this post after reading/thinking about it.

• The main gist of the article is that decreased oil prices will lead to a spur in consumer spending. The question to ask is: Of the average consumer, what percentage of their consumption is devoted to gas/electric bills/goods whose prices fluctuate heavily due to energy costs? How much MORE money would the average consumer spend on goods, ceterus paribus, given its fall since July from ~$147/barrel to new lows of below $70/barrel?
• The author posits that oil at $80/barrel would induce $170 billion in energy savings over 6 months if it held at that level. Assuming half is spent in Q4 2008 and the other half in Q1 2009, the boost to annual spending would be 3.5% in each period. However the author notes that much of this boost would be counteracted by decreased home values and possible decreased stock prices. Overall, GDP will increase slightly according to the author.
  
• Here are his official reasons for hope:

1. Starting in the current quarter, consumer spending (70% of GDP) is likely to post gains, bolstered by lower energy prices.
2. Inventory-to-sales ratios are low. Retailers won't be stuck with a glut of unsold inventory (which would further drag down growth) and may even choose to rebuild inventory next year if the economy grows sufficiently.
3. Capital spending was subdued during the recent expansion, leaving no need to work off excess industrial capacity.
   
4. Net exports will increase growth very slightly.

Here is another article in Barron's with the 'con' point of view.