Business economists think U.S. can dodge recession

 No comments  
 E-mail Story
 Print Story
  Share

 digg it!
 Facebook
 del.icio.us
Seed Newsvine
Fark It
Reddit

Text Size: 

Tools Sponsor

By GREG ROBB/MarketWatch

WASHINGTON — A panel of prominent economists sees sluggish near-term growth but believes the U.S. economy can dodge a recession, although there were widely divergent views.

While the U.S. economy faces a higher risk of recession caused by weak credit markets, housing and energy prices, the economists surveyed “still do not see a recession as the most likely outcome,” said Ellen Hughes-Cromwick, the president of the National Association for Business Economics, who conducted the survey.

The median forecast expects the economy to slow in the fourth quarter to a 1.5 percent GDP growth rate and then gradually improve over the next year.

[+]Enlarge

The economy grew at a 3.9 percent rate in the third quarter, and many economists expect an upward revision above 4.5 percent when the government revises the data on Nov. 29.

But according to the survey, some of the 50 economists expect a much steeper slide in growth. 

The five lowest forecasters expect growth at a paltry 0.5 percent rate in the fourth quarter and a 0.2 percent rate in the first quarter. But none forecast negative growth.

Economists are generally unwilling to forecasts recessions because it is so difficult. When Federal Reserve Chief Ben Bernanke was asked to give his odds of a recession, he demurred, saying the central bank was not any better at predicting recessions than other economists.

“We have not calculated the probability of recession,” he said. “Our assessment is for slower growth, but positive.”

Members of the National Association of Business Economists were not so shy. Roughly one-in-five said the risk of a recession was over 50 percent. About three-fifths put the odds of a serious downturn at less than 30 percent.

The most likely recession triggers were spillover from housing weakness to consumer spending and tightening credit markets.

The five highest forecasters expect 3.1 percent growth in the fourth quarter and 3.2 percent growth in the first quarter.

At the same time, the association panel expects the Fed to hold rates steady next year, with short-term rates staying at 4.5 percent. But the view was not unanimous.

Some forecasters are looking for rates as low as 3.5 percent by the end of 2008. Other economists see rates at or above 5 percent.

While the Fed has said that the risks of higher inflation and slower growth are relatively balanced, the economists were much more optimistic about inflation.

The panel said that “core” inflation would remain within the Fed’s perceived comfort zone of 1 percent to 2 percent in 2008.

The panel trimmed its estimates for all of the major sectors next year, with housing getting the largest downgrade.

Housing starts are projected to total just 1.2 million units in 2008.

The panel was not optimistic about home prices. About two-thirds of the economists predict that home prices will drop over 2008.

They were more optimistic about energy.

The economists expect the price of oil to drop to $75 a barrel by the end of 2008.