US economy weak but not enough for recession

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SAN FRANCISCO, Mar 11 (Reuters): The US economy will shrink in the second quarter, but avoid a recession this year as housing's drag will ease in the second half, helping normal growth return next year, according to a UCLA Anderson Forecast report released Tuesday.
"The data don't yet add up to a recession and there is nothing here to challenge the basic story of sluggishness that we have had for two years," the forecasting unit's report said, adding: "Our no-recession forecast remains nervously intact."
Amid a cooling economy, the labour market is only slowing so it lacks enough drag to force a recession, according to the forecasting unit.
"The weakening job market is completely consistent with our longstanding forecast of a housing adjustment that is mostly confined to housing," the report said.
The UCLA unit added that its forecast also hinges on whether falling home prices depress consumer spending, and that it does not expect consumers to overreact.
"It has been our view that the reaction to the reality of lower home prices will be slow and smooth, which is a reason to forecast slower growth in the future, not a recession," the report said.
"In the last year or two, personal consumption expenditure has been weakening a bit, but it seems pretty clear that the news on the housing front hasn't forced a rapid consumer adjustment so far," the report said.
The forecasting unit noted the economy has withstood the housing slump -- especially eight consecutive quarters of declines in housing starts -- because the homes market and jobs market have become disconnected.