Job growth is faltering, consumer confidence plunging. The fallout from the worst housing slump in a quarter-century grows. Wherever one looks, the signs are unmistakable that the US economy is in trouble.
Because of all the bad news, more and more economists foresee the US falling into a recession, the latest survey by the National Association for Business Economics (NABE) said.
The group said in a report released yesterday that 45 percent of the economists on its forecasting panel expect a recession this year. In September, only one in four economists was pessimistic enough to put the chance of a recession at 35 percent or higher.
The drumbeat of bad news since last fall has caused many analysts to consider a recession more likely now, said Ellen Hughes-Cromwick, chief economist at Ford Motor Co and NABE president.
The survey shows that 55 percent still believe the country will be able to skate by without falling into an actual downturn, typically defined as two consecutive quarters of declines in the gross domestic output. All the analysts, however, expect growth to slow considerably this year.
The forecasters believe GDP will expand by 1.8 percent this year, which would be the weakest growth in five years. That compares with an estimate of 2.5 percent growth for this year made in the previous survey, in November.
The new estimate is in line with a downgraded forecast from the Federal Reserve last week.
The NABE forecast reflects the expectation the economy will grow only sluggishly or actually contract from last month through June. Then it is seen starting to expand more strongly in the second half of the year. Helping accomplish that is a US$168 billion federal aid plan, with its rebate checks for millions of families, and aggressive interest rate cuts from the Fed.
The panel of 47 top forecasters thinks "any recession, if it occurs, will be short and shallow," Hughes-Cromwick said.
The biggest change in the new survey involves the outlook for interest rates.
In November, economists expected the Fed would keep a key rate, the federal funds rate, at 4.5 percent through all this year. That rate, the target for overnight bank loans, already is at 3 percent, after significant cuts by the Fed last month. Fed Chairman Ben Bernanke has indicated that further rate cuts will be coming if the economy fails to rebound.
So the NABE experts now predict the funds rate will end this year at 2.5 percent.
Inflation is expected to moderate greatly this year as the weak economy cools price pressures. Inflation shot up by 4.1 percent last year, the biggest jump in 17 years.
The Consumer Price Index is forecast to rise by 2.5 percent. That is based in part on the NABE panel's view that demand will weaken for oil and the barrel price will drop to about US$84 by December. The current trend, however, is up; crude oil jumped to all-time highs above US$100 per barrel over the last week.
The weaker growth will mean higher unemployment, the forecasters say. They predict that the jobless rate this year will average 5.2 percent, compared with 4.6 percent last year.
Mark Zandi, chief economist at Moody's Economy.com and a NABE panelist, said he believed the economy entered into a recession in December and it will pull out of the downturn in June, aided by the rebate checks that begin going out in May.
If problems worsen for the financial industry, hard hit by the housing downturn, then Zandi said Washington will rush through a second rescue measure because nervous politicians will not want to be seen as dawdling before the November elections.
A second panel member, David Wyss, chief economist at Standard & Poor's in New York, also believes the US is now in a recession. While he believes the economic aid plan signed by US President George W. Bush should make the downturn a mild one, he worries the economy could falter again next year.
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