Economic Gauges Raise Specter of Recession

Hiring is slowing, auto sales are slipping and business investment is dropping. America's factories remain weak and corporate profits are under pressure. All are classic signs of an economic downturn, and forecasters have certainly noticed. In a Wall Street Journal survey this month, economists pegged the probability of a recession starting within the next year at 21%, up from just 10% a year earlier. Some economists think the risk is even higher.

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Quarterly U.S. corporate profits have been declining on a year-to-year basis since late last year, according to the Commerce Department. The continuing balance-sheet squeeze is one reason Joshua Shapiro, chief U.S. economist at consultancy MFR Inc., pegs the odds of a recession in the next year at 50%.

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The factory sector remains a special source of weakness. Overall industrial production, as tracked by the Federal Reserve, has declined on a year-to-year basis for the past nine months... since 1919, industrial production has never fallen for so long without an accompanying recession.