More Economists See U.S. Recession Ahead, Business Group Says

Nov. 19 -- The number of economists forecasting the U.S. will slip into recession almost doubled over the last two months, according to a survey by the National Association for Business Economics.

Nine of 50 economists pegged the odds of a contraction over the next 12 months at 50 percent or higher, according to a poll taken from Oct. 22 to Nov. 6. Just five of 46 held a similar view in September.

The spillover from the biggest housing slump in 16 years, turmoil in financial markets and higher energy prices will cause growth to slow to an annual pace of 1.5 percent this quarter, less than the survey participants previously forecast. More than two-thirds of those polled said the chance of recession was at least 25 percent.

``While the U.S. economy faces a higher risk of recession from credit markets, housing and energy prices, NABE's panelists still do not see recession as the most likely outcome,'' said Ellen Hughes-Cromwick, the group's president and chief economist at Ford Motor Co., in a statement.

The economy will expand 2.6 percent from now to next year's fourth quarter, according to the survey. While that is lower than September's forecast, it would still surpass the 2.4 percent projected for 2007.

The survey's median forecast for fourth-quarter growth matched the projection in a Bloomberg News survey also taken earlier this month. Many of the economists surveyed by NABE also participated in the Bloomberg poll.

No Fed

The Fed will keep its benchmark overnight lending rate between banks at 4.5 percent through the end of next year, according to the NABE survey median. The forecast was ``not unanimous,'' with projections ranging from 3.5 percent to 5 percent, the group said.

The next meeting of the Fed's policy-making Open Market Committee is set for Dec. 11. The central bank lowered the benchmark rate on overnight loans between banks for a second month on Oct. 31 and said the reductions balanced the risks of higher inflation and slower growth.

Fed Governor Randall Kroszner said Nov. 16 that policy makers probably won't need to reduce interest rates further to help the economy weather a ``rough patch'' in the coming year.

``The current stance of monetary policy should help the economy get through the rough patch during the next year, with growth then likely to return to its longer-run sustainable rate,'' Kroszner said in a speech in New York. Data consistent with such growth ``would not, by themselves, suggest to me that the current stance of monetary policy is inappropriate.''

2008 Improvement

The economists polled by NABE projected growth would strengthen through next year, capped by a 3 percent pace of expansion in the last three months of 2008, according to the survey median.

``Our panel of forecasters sees growth gradually picking up from the sluggish pace projected this quarter even without further easing by the Federal Reserve,'' Hughes-Cromwick said.

The economists were most pessimistic about home construction. Housing starts will fall to 1.2 million units next year, from a projected 1.36 million in 2007, according to the survey. Residential investment has subtracted from economic growth every quarter since the first three months of 2006.

Survey participants also trimmed estimates for job and profit growth. The unemployment rate probably will average 4.9 percent next year and after-tax profits will grow 4.7 percent, the group forecast. In September, the economists had projected an average jobless rate of 4.8 percent and a 5.6 percent increase in profits.