Archive for Monday, November 19, 2007

Housing, credit markets increase U.S. recession risk

November 19, 2007

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— The painful collapse of the housing market along with the credit crunch will weigh down economic growth in the final three months of this year and cause economic activity to lag in 2008.

It all means that the risk of a recession has increased, economic forecasters say.

The latest look-ahead from the National Association for Business Economics says the gross domestic product is on track to expand at just a 1.5 percent pace from October through December. If that proves correct, it would mark a sizable decline from the July-September rate of 3.9 percent.

The group's new fourth-quarter projection compared with September's prediction of a 2.5 percent growth rate. The GDP - the value of all goods and services produced in the United States- is considered the best barometer of the country's economic fitness.

For all of this year, the forecasters expect the economy to grow by 2.1 percent, which would be the weakest showing since 2002. Back then, the economy was emerging from a recession and grew by just 1.6 percent.

"While the U.S. economy faces a higher risk of recession from credit markets, housing and energy prices, NABE's panelists still do not see recession as the most likely outcome," said Ellen Hughes-Cromwick, the group's president and chief economist at Ford Motor Co.

Forecasters expect consumer prices to rise 2.8 percent this year and then moderate to 2.5 percent next year.

The wild card in the outlook is oil prices.

Oil hit a record $98.62 a barrel last week. Gasoline prices have climbed above $3 a gallon. If high oil prices force lots of companies in other industries to raise prices, inflation could spread through the economy. If high energy prices chill consumer spending, it would further chill growth.

NABE forecasters hope the worst is over for oil prices and predict declines to $75 a barrel and $2.72 a gallon by the end of next year. The survey of 50 forecasters was taken from Oct. 22 through Nov. 6.

Comments

Godot 7 years, 9 months ago

IMHO, things are worse than this article suggests. Word to the wise, if you have savings in a money market fund, take it out. Money market funds bill themselves as conservative investments, but they are not guaranteed not to lose value.

If you have a GE Asset Management money market fund (the fund is, or was, $5billion in size) you have already lost principal; as of last week, GE was paying $.96 on the dollar on its money market redemptions.

http://www.moneymorning.com/2007/11/16/ge-money-fund-breaks-the-buck-others-scramble-to-cover-losses/

Nothing like losing 4% on a "safe" investment.

Oracle_of_Rhode 7 years, 9 months ago

Bush's disastrous time in power will end with the country in two unwinnable wars without end and our country's moral reputation in shreds abroad -- and our economy in a near-depression, a great city in splinters, our tallest buildings in ashes, and our civil rights and personal freedoms stripped at home.

Thanks a lot conservatives and republicans!

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