Forecast sees no U.S. recession in 2008 despite housing woes
AP Business Writer
LOS ANGELES (AP) ” The nation’s housing doldrums will drag on at least through 2009, dampening U.S. economic growth and job creation, but the slowdown won’t push the economy into a recession, according to a new economic report.
Despite plunging housing values, rising oil prices and the credit crunch that battered Wall Street, the nation’s job market is unlikely to suffer the kind of steep losses that would tip the economy into a recession, according to the quarterly Anderson Forecast by the University of California, Los Angeles.
“We still think an official recession is not in the immediate future,” concluded Edward Leamer, director and co-author of the forecast set for official release Thursday.
The no-recession forecast runs counter to the outlook among many economists and financial pundits, who have warned the nation will likely see a recession as a wave of adjustable-rate mortgage resets tears through the housing market next year.
Leamer, however, insisted the housing woes alone won’t hobble the economy enough to cause two consecutive quarters of negative economic growth in the nation’s gross domestic product ” the standard used to define a recession.
In addition, the U.S. unemployment rate would have to soar from the current 4.6 percent to nearly 6 percent by the end of next year, the equivalent of a loss of at least 2 million jobs, Leamer said.
That would require major job losses from a sector other than construction, something the UCLA economist doesn’t see happening.
Heavy job losses in manufacturing, which has shed about 3 million jobs since 2001, could have such an impact, but Leamer believes such losses are implausible.
The recent uptick in unemployment is far from recession territory, he said.
Still, he projects the economy will remain sluggish for another couple of quarters before starting to rebound in the second half of 2008.
The forecast estimated the housing slump cost the U.S. economy a percentage point of growth this year, or one-third of the typical 3 percent annual rate of increase.
Leamer predicted the U.S. housing downturn will drag on at least through 2009, with prices continuing to drop and levels of new construction remaining depressed.
Even so, the drag that housing is having on the national economy will “substantially abate” by mid-2008, with housing starts bottoming out by next summer to about 900,000 units, Leamer said.
“That means that the builders are going to continue to suffer,” he noted. “Starting middle of next year is when things stop getting worse … that doesn’t mean the housing market is healthy.”
Many economists are worried that rising oil prices combined with housing and credit problems will shake consumer confidence, a key driver of growth.
The UCLA forecast said consumer spending will likely lag, particularly on large items such as cars.
“The auto sector is going to have a weak year,” Leamer said.
Meanwhile, the decline in the value of the dollar should help fuel U.S. exports for the next several years, and the decline in consumer spending will mostly affect other countries in the form of weaker imports, Leamer said.