Economist John Hussman: Stocks to Plunge 25 Percent, US Recession Likely

MoneyNews by Forrest Jones
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U.S. stocks will fall 25 percent and the country stands a good chance of slipping into a recession in 2012, says economist and fund manager John Hussman.

While manufacturing numbers are improving in the U.S. and stock prices are on the rise, too many analysts are focusing on backwards-looking data, numbers that reflect what happened and often pop up on headlines with greater clarity than leading indicators, which aim to suggest how things may unfold.

Unemployment rates, for example, came in much better in January than expected, although the numbers don't suggest such momentum can sustain, especially since jobless figures can swing more than normal around January due to seasonal factors.


Read more: Economist John Hussman: Stocks to Plunge 25 Percent, US Recession Likely

When the mood from lagging indicators pops, the economy could fall and recession could follow.

"Though I don’t expect a 2008-type collapse here, I would view a 25 percent market decline as only run-of-the-mill," Hussman says in a note to investors.

"I don’t view the probability of recession as 100 percent, but the leading evidence continues to indicate recession as the most likely probability."

Other economists agree that a recession is more likely in the U.S. than most would think.

Fiscal spending will wind down this year as the government moves away from stimulus measures and focuses on narrowing deficits.

Decreased presence from the government will take a good chunk out of economic activity, which ups the chances for a downturn, says Jim Walker, founder and managing director of Asianomics, an independent research firm.

"There's going to be a significant slowdown in fiscal expenditure in the U.S., they're going to have to control the fiscal side much more as the year goes on," Walker tells CNBC, adding in a separate report there's a 55 percent chance for recession this year.

"Home prices are still falling (on a mild deflation path), equity prices are still off their highs of the year, household credit outstanding is still contracting, real hourly compensation growth is still negative, employment growth is still subpar — and up until November — consumer confidence was fast approaching the recession lows of 2008," Walker writes in a report, also reported by CNBC.