Friday, August 11, 2006

Signs of a Softening Economy

From today's report on's economic forecasting survey:

This month's economic forecasting survey showed projections for gross domestic product and employment growth were cut, while forecasts for consumer prices and oil prices were lifted. Economists continued to nudge higher their estimates of the probability of a recession over the next 12 months; on average, they put the likelihood at 26%, up from 20% in June and just 15% in February.

Economists, on average, forecast GDP growth at a 2.8% annual rate for the third quarter, the first time their forecast for that quarter has been under 3% since the economic forecasting survey first asked about the period in November 2005. While their forecast is slightly above the 2.5% real GDP growth recorded in the second quarter, it is well below the 5.6% growth in the first quarter and average annual growth rate of 3.2% from 2003 to 2005. The economists forecast growth slowing to a 2.6% rate in the fourth quarter, and staying at that rate for the first half of 2007. GDP is the broadest measure of economic output.

"The economy has definitely slowed below trend," said Ethan Harris at Lehman Brothers. "Second quarter GDP is soft, employment numbers are coming in soft and the housing market is finally softening."

Hard to argue with that. The question for me is whether we can get any increase in exports or non-residential investment to stem the losses.

For a discussion of the role that higher oil prices may play in the risk of recession, see this Econoblog by Stephen Brown and James Hamilton.

1 comment:

Arun Khanna said...

Three steps could nudge the U.S. economy forward:
1. Free trade pact with India.
2. Disinvestment of large U.S. government owned projects like Tennessee Valley.
3. Higher investments in service industries since they are typically immune to oil price changes.