US Economic Downturn Seen as Mild, Brief

By Michael Bowman

Washington

19 May 2008

A Washington-based business group says the U.S. economy remains sluggish, but will likely avoid a major recession. VOA's Michael Bowman reports.



The last two U.S. recessions, in the early 1990s and in 2001, saw quarters in which America's economy contracted, with inflation-adjusted gross domestic product registering negative growth rates. This year, the U.S. economy has flirted with recession, but has averted an actual contraction, logging a 0.6 percent growth rate in the first quarter.

A panel of economists surveyed by the National Association for Business Economics expects America's anemic economic growth to continue in the short term, expanding only 0.4 percent for the second quarter of this year. Lynn Reaser, an economist for Bank of America who heads NABE's economic forecasting committee, says the overall projection is for an economic downturn that is both mild and brief.

"This is a very shallow downturn," said Reaser. "In fact, only slightly more than half of our [NABE] members believe it will ultimately be declared a recession. And, of those, the majority believe it will be over either this quarter or the next [one]."

The NABE panel expects economic growth to pick up in the second half of the year, at a two percent annual growth rate. The U.S. unemployment rate is expected to continue to rise, but only modestly to 5.6 percent next year.

The NABE panel points to some encouraging signs for the economy, including expanding U.S. exports and a narrowing U.S. trade deficit. The panel expects the U.S. dollar, which has fallen dramatically against the Euro and other major currencies, to stabilize and eventually strengthen.

Worries about the U.S. economy began to escalate last year, prompted in large part by a rash of foreclosures among Americans with so-called "sub-prime" mortgages that were given to homebuyers with spotty credit histories. The sub-prime crisis provoked a broader credit crunch that has made it difficult for many businesses and consumers to secure loans, constraining economic activity and devastating the U.S. housing market.

Turmoil in financial markets and higher energy prices are taking a toll on current growth, as well.

Lynn Reaser says NABE economists believe the worst of the credit crunch is likely over.

"What this survey suggests is that, perhaps, credit availability will actually improve in the second half of this year," said Reaser. "It is important because there have been concerns that all of the problems on Wall Street would crimp borrowing for businesses and consumers on Main Street [the broader economy]. It still will be a constraint going forward, but we think that credit markets will loose some of their tight grip as we move through the balance of 2008."

The NABE forecast appears to be in line with other U.S. economic signals. Another group, the New York-based Conference Board, said that its index of leading economic indicators edged higher in April. The slight rise in the index, which is designed to forecast short-term economic performance, is seen as a sign of continued economic weakness, but does not foreshadow a drastic downturn.