Business Economists See Risks Rising, But Believe U.S. will Avert Recession

Forecast of 4.8% unemployment in 2008

The National Association of Business Economists panel concluded that recession is a growing risk, but that the world's biggest economy will maintain modest growth. The NABE panelists cut their outlook for the fourth quarter of 2007 by a tenth of a point to 2.2% growth in gross domestic product. They made a sharper revision to their 2008 outlook to show growth of 2.8% instead of 3.1%.

"The NABE panelists see reduction in economic growth across major spending categories," said Ellen Hughes-Cromwick, NABE president-elect and chief economist at Ford Motor Co. "They trimmed the outlook for residential investment, marked down expectations for productivity growth, and expect the Fed to cut rates by 50 basis points this year."

Over 60% of the economists cited recession as the biggest risk facing the economy over the next year, while only a third cited inflation as the greatest problem. et most said they believed the U.S. would avoid a full-blown recession. Respondents most concerned about the risk of recession cited problems in the subprime mortgage market and potential declines in home values as the most likely triggers.

The panel sees the federal funds rate moving down 50 basis points in late 2007 and early 2008 and then holding steady at 4.75%. This is about 25 basis points lower than that anticipated in the May survey.

The analysts see the job market holding up despite the softer outlook. The forecasters see the unemployment rate moving up a bit, to 4.8%, and private employment to expand more than one percent in 2008, or by more than one million jobs.

The underlying inflation outlook has been little changed. The 2007 estimate for growth in the Consumer Price Index has been boosted from 2.9% in May to 3.3% but that for 2008 has been trimmed from 2.4% to 2.2%.

Copyright Agence France-Presse, 2007

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