A Regional Recession That Saves The Country?

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The head of Honda (NYSE:HMC) recently made an interesting observation. He sees sales faltering in some states where housing prices and commodities costs are in trouble. But, looking at the broader US, he sees no recession.

"It’s true that our sales are falling in Florida and California, but we’re recording our best-ever sales in the East Coast and Midwest," Chief Executive Officer Takeo Fukui told a news conference covered by Reuters. The man may have a point.

The prevailing theory is that the US is either in a recession or heading for one. That would pull the entire country into negative growth and presumably cause jobs losses and business spending cutbacks across America.

But, what if that theory is weak? So far, job growth has not entirely disappeared. This may be driven by hiring in the stronger economic regions in the Midwest and South. Mortgage defaults are not being caused by unemployment. They are being caused by ARMs which reset much higher than people expected.

There is no reason that a recession in Florida has to ruin the economy in Kentucky. As a matter of fact, states like Kentucky may drive a growth engine that keeps jobs at a modest level and consumer spending above water.

A "regional recession" may be the best thing that the Fed can hope for, but, it is not entirely out of the question.

Douglas A. McIntyre

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