Reports spark US recession fears

"My own feeling, ... there is at least some chance that the economy may turn out to be stronger in 2003 than the consensus projects."

J. Alfred Broaddus, president of the Richmond Federal Reserve Bank

A series of weak economic reports has sparked renewed debate over whether the US economy is poised for a strong rebound or teetering on the edge of a double-dip recession.

Brokerage Merrill Lynch, offering an increasingly bearish outlook, said Monday it was cutting its estimates for US growth.

David Rosenberg, Merrill's chief economist for North America, said that he was cutting his outlook for economic growth in the fourth quarter of last year, to be released next week, to a 0.8 percent pace "from what was an already below-consensus view of 1.3 percent."

Rosenberg maintaining his call for a 2.25 percent growth pace in the first quarter of this year, but added that "last week's data releases were so weak [that] ... the risks are to the downside."

Rosenberg that the case is building for the Federal Reserve to revert to its "de facto easing bias," which would set the stage for more interest rate cuts, as early as the Jan. 29 meeting.

Economists particularly concerned about figures showing declining consumer confidence -- which could affect consumer spending and its two-thirds of US economic activity -- as well as a surprise dip in industrial output.

Morgan Stanley economist Richard Berner acknowledges that Wall Street is worried.

"A new double-dip scare is stalking financial markets," he said, but added: "In my view, it's another scare, not a double-dip relapse."

But his Morgan Stanley colleague Stephen Roach -- who suggested a likely double-dip recession a year ago -- is more concerned, saying that the economic data are "now flashing `zero growth'" for the fourth quarter.

"It's not a strict dip -- as a purist I insist on a negative sign -- but you can't get any closer," he said.

"Consumer confidence is shaky, ... and wealth effects are no longer working. Moreover, awash in excess capacity and lacking in pricing leverage, earnings-constrained businesses are understandably reluctant to invest and hire; that's the verdict from renewed year-end 2002 weakness in capital spending and employment."

These bearish forecasts are in sharp contrast to comments from the Federal Reserve and other economists.

J. Alfred Broaddus, president of the Richmond Federal Reserve Bank, said last week that growth this year could be ahead of most forecasts.

"My own feeling, ... there is at least some chance that the economy may turn out to be stronger in 2003 than the consensus projects," Broaddus said.

Broaddus the consensus calls for a "modest acceleration of real [economic] growth from about 2.75 percent in 2002 to about 3.25 percent in 2003."

Broaddus that while there were downside risks in the outlook, "for the first time in a while, I think the chances that actual growth will exceed the consensus forecast somewhat are about equal to the chances that it will come in below it."

Other note that while the fourth quarter will be weak, it is more important to look ahead to this year's figures.

"The fourth quarter is weak, but I think momentum starts going up again from here," said James O'Sullivan, economist at UBS Warburg.

Many say the long-ailing US manufacturing sector is solidly in recovery, despite a 0.2 percent decline in output in December.

"While it was very disappointing that it was down, the details of the [industrial output] report don't indicate the manufacturing sector is tail-spinning," said Joel Naroff of Naroff Economic Advisors in Pennsylvania.