- The Washington Times - Tuesday, February 27, 2007

ASSOCIATED PRESS

Alan Greenspan and the Wall Street nose dive aside, economists think the probability of a U.S. recession this year is fairly low and the likelihood of one in China is even lower.

Mr. Greenspan, former chairman of the Federal Reserve, warned Monday that the United States could slip into recession this year. That would be bad news for the global economy, too.

However, many economists put the probability of a recession at one in five.

The biggest risk to the five-year-old U.S. economic expansion is that the housing slump might take a turn for the worse, analysts say.

The latest U.S. economic barometers released yesterday were mostly good, but they failed to ease investors’ anxiety. The Dow Jones Industrial Average tumbled 416 points to close at 12,216. At one point during the day, the Dow slid as much as 546 points, its worst decline in more than five years.

The National Association of Realtors reported that sales of previously owned homes — the biggest chunk of the housing market — rose by 3 percent in January from the previous month. That was the largest gain in two years. While the sales boost was helped out by last month’s unusually warm weather, it still raised hopes that the worst of the residential real estate bust may be over.

Even if that turns out to be the case, the pain of the housing slump will continue to be felt this year because the inventory of unsold homes is still bloated. That will take time to fix and may drag down home prices even more.

The nationwide median price of an existing home sold in January sank to $210,600, a drop of 3.1 percent from last year and the third-largest annual decline on record. The median price is where half sell for more and half for less.

Before yesterday’s huge stock market drop, consumers seemed in buoyant spirits.

Consumer confidence zoomed to a 51/2-year high in February with people feeling better about current economic conditions as well as the job climate. The Conference Board’s index climbed to 112.5 from 110.2 in January. That should bode well for the national economy because if consumers are feeling optimistic they may be more inclined to spend.

A third report, also released yesterday, underscored the struggles of the nation’s manufacturers, which have been feeling the strain from the ailing housing and automotive sectors as well as intense foreign competition. Orders for big-ticket manufactured goods plunged 7.8 percent in January, the largest decline since October, the Commerce Department said.

Economic growth for the final quarter of 2006 is expected to be downgraded to a subpar 2.3 percent pace from the solid 3.5 percent rate initially estimated a month ago.

For the year, the National Association for Business Economics (NABE) is predicting the economy to slow to 2.8 percent, down from 3.4 percent in 2006. The Bush administration says growth will slow to 2.9 percent, while the Federal Reserve estimates somewhere between 2.5 percent and 3 percent. The housing slump is expected to be the main culprit. Next year, though, economic growth would pick up to the 3 percent range.

The International Monetary Fund, in projections in the fall, said the world economy should hold up well in the face of a slowing U.S. economy and should grow by a solid 4.9 percent this year.

China’s economy logged blistering growth of 10.7 percent last year — the most since 1995. It is expected to slow somewhat to 9.8 percent this year, according to the country’s central bank.

Brian Bethune, economist at Global Insight, predicted China’s growth would have to slow much more — to about 6 percent or less — to precipitate major economic turmoil. “It would take a major slowdown to upset the Chinese apple cart,” he said.

Economists put the odds of a U.S recession this year at one in five.

“It is very rare that business cycles die of old age. It is usually some shock that leads to recession,” said Carl Tannenbaum, chief economist at LaSalle Bank and president of the NABE.

The economy’s last recession, in 2001, was preceded by the bursting of a stock market bubble in 2000 that wiped out trillions of dollars in paper wealth. Then came the September 11, 2001, terrorist attacks.

The shock this time could come from the housing slump and from the surge in delinquencies and foreclosures for “subprime” borrowers — people with weaker credit records who are considered higher risks — especially those who have adjustable-rate mortgages.

“While the probability of a recession is low, it does highlight that the economy will be vulnerable to any shock in 2007. It is worth thinking about and preparing for,” said Mark Zandi, chief economist at Moody’s Economy.com.


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