Economists see risks rising, but believe US will avert recession

FE Team | Published: September 12, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

WASHINGTON, Sept 11 (Agencies): Leading US business economists foresee softening growth ahead that will prompt the Federal Reserve to cut interest rates, but they believe a recession will be averted, a survey showed yesterday.
The National Association of Business Economists (NABE) 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 per cent growth in gross domestic product. They made a sharper revision to their 2008 outlook to show growth of 2.8 per cent instead of 3.1 per cent.
"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 Company.
"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."
In light of continuing weak data and the turmoil in the subprime mortgage market, the panel reduced further its outlook for residential investment, cutting its forecast for 2008 housing starts by about 100,000 units, to 1.4 million.
Over 60 per cent 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.
Yet most said they believed the US 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 per cent. 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 per cent, and private employment to expand more than one per cent 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 per cent in May to 3.3 per cent but that for 2008 has been trimmed from 2.4 per cent to 2.2 per cent.
Meanwhile, US employers remain confident about hiring for the fourth quarter, as weak housing and trouble in the credit markets are, for now, having limited impact on job plans, according to a Manpower Inc survey released Tuesday.
The poll of 14,000 employers found the net employment outlook -- the difference between those adding jobs and those cutting them -- was unchanged for the fourth quarter from the third. The seasonally adjusted level of 18 compares with a reading of 20 a year ago, Manpower reported.
The Manpower report comes after the government last week reported a surprise drop in US non-farm payrolls in August, which raised fears the US economy was shifting to a much lower pace of growth or could tip into recession.