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Facing the Recession :
How Bad Will It Be?
PREVIOUS ISSUES
Our view of the economy isn't as gloomy as that of many others, who see the situation continuing to worsen, based largely on the belief that oil prices will stay high. We, on the other hand, expect oil prices to decline by the end of the year, helping to disperse the dark cloud that threatens to accelerate the downward spiral of job losses and reduced spending that is depressing growth.
We do expect the slump to linger, though. Gross domestic product (GDP) growth won't climb above 2% next year and may well be as close to 1% as to 2%. And the gain for this year is likely to be no more than a puny 1%.
Though positive, that will feel pretty lousy, particularly with inflation at 4%, December 2008 over December 2007, and likely to hit a 5% annual rate in some months. Tax rebate checks should make the third quarter the strongest, but the lift will be barely perceptible. Gasoline and food prices have already risen enough to eat up virtually all of the $120 billion in rebates.
Meager job growth won't help much, either. Total employment will increase by only 10,000 this year. That's not nearly enough to keep abreast of growth in the labor force. So, unemployment will keep climbing, from 5.5% now to about 6.3% next year. Unemployment typically continues to rise for a year or more after a recession ends. That means consumers, who are also laden with debt, will add very little to economic growth. Figure consumer spending will go up just 1.5% this year and next.
As for business investment, count on about a 3% increase this year, flat next year. That's a little worse than expected earlier, dampened by continued high energy costs and Wall Street volatility. Planning is especially tricky -- executives will exercise caution.
Exports will hold up fine. Any drag from a strengthening dollar won't start to play a role for at least a year. We anticipate exports up about 7% this year, followed by a jump just a tad less robust next year. That's a big plus, notes former Federal Reserve governor Lyle Gramley, adding that "the rise in exports has been offsetting 90% of the drag from housing."
There are some glimmers of light in housing as well. Realtors say pending home sales rose in April, though figures are still way below year earlier numbers. Bargain hunters are beginning to enter the markets -- especially in the West and Midwest -- the first sign of a turnaround that should have housing sales start to pick up as prices bottom out next year.
Moreover, the Fed's seven rate cuts should pay off over the next six months or so -- another economic buoy. In fact, the Fed is counting on that. Chairman Ben Bernanke says that "although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so."
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POSTED BY: Chris (June 19, 2008 01:30 AM)
I read this article with lots of skeptism due to various "%" presented. Statistics are misleading, especially these findings. Food and gas prices will continue to remain high. This will continue to effect most Americans very, very hard. The effects of job loss, lack of healthcare, and high personal debt will have severe impact on all of us (unless your independently wealthy). If the economy isnt so gloomy; curious to what the author here speculated 3 or 4 years on the "state of econom"y for 2008? I dont think we have seen the worst of this.....I hope I am wrong, but a part of me feels, like the author may be in denial to the state of our country and how the representation of the middle class continues to erode, while other industrialized economies are kicking are "arse" in healthcare, education, technology and life span so to speak. Recent flooding in the midwest and the loss of homes and lifelong belongings for these folks (which by the way will impact already rising food prices) isnt gloomy? Americans are incredibe adaptable creatures; we are severely being tested...and its about time.
POSTED BY: malan4oil (June 23, 2008 11:45 AM)
Are you hiring "Genius" writers? I ask because I could have written that article.....
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