Recession Now Economists' Greatest Fear

by: Susan Lerner

As conditions in the housing credit markets worsen, economists now put the odds of a U.S. recession at one-in-three within the next 12 months, up from one-in-four a month ago, a new poll revealed Monday. According to the National Association of Business Economists survey of 46 economists, more than 60% now cite recession as the major risk to the economy in 2008, while just one-third cite inflation. "The NABE panelists see reduction in economic growth across major spending categories" for the balance of this year and into next, said Ellen Hughes-Cromwick, NABE president-elect and chief economist at Ford Motor Co. The group's outlook for GDP this year remained at 2%, but its view for 2008 was at 2.6%, down from the 2.8% expected a month earlier. Expectations for consumer spending next year were down to 2.5% from 2.8%, while the forecast for business fixed-investment dropped to 3.7% from 5%. Its inflation view was little changed. As for interest rates, the group expects the Fed to cut 50 basis points from the current 5.25% by 2008, and then hold steady at 4.75%. On a positive note, the group forecast that disposable personal income will outpace spending for the first time since 2002.

Sources: Reuters, Financial Week
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