Forecast: Good news, bad news - East Valley Tribune: Business

Forecast: Good news, bad news

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Posted: Monday, May 19, 2008 10:09 pm | Updated: 10:58 pm, Fri Oct 7, 2011.

WASHINGTON - First the good news: The worst of the painful housing slump and the credit crunch might come to an end this year. Now the bad: The economy will weaken further and unemployment will rise.

Surprise rebound in housing, but outlook still shaky

That’s the latest outlook from forecasters in a survey to be released today by the National Association for Business Economics. It will take time for any rays of light to poke through the economic clouds, though.

A growing number of economists believe the country is on the brink of a recession or in one already, dragged down by all the problems in housing, credit and financial markets. Now, 56 percent of the economists think the economy has started or will enter a recession this year.

That’s up from 45 percent in a February survey. If there is a recession, it likely will be short and shallow, economists said.

Forecasters downgraded their projections for economic growth. They now predict the economy, which grew by 2.2 percent last year, will slow to 1.4 percent this year.

That’s lower than the 1.8 percent growth projected in February.

If the new figure proves correct, it would mark the weakest growth since the last recession in 2001.

Next year, the economy should grow by 2.3 percent, less than previously forecast. “Although housing and credit markets will gradually loosen their grip, U.S economic growth is expected to only slowly return to health,” said Ellen Hughes-Cromwick, president of the group and chief economist at Ford Motor Co.

Given the outlook for sluggish overall economic activity, companies are likely to remain cautious in their spending and hiring.

The unemployment rate, which averaged 4.6 percent last year, will move higher.

Forecasters predict the jobless rate will hit 5.3 percent this year and 5.6 percent next year.

Forecasters hope the housing slump — in terms of home sales — will hit bottom this year.

However, economists were divided over whether the low point would be reached in the second, third or fourth quarters of this year.

House prices, though, are still expected to drop this year and next. On the credit front, economists predict conditions will improve in 2008’s second half.

“The economy is still going to be weak in the very near term, but the worst is likely to end this year with respect to the housing decline and the credit crunch,” said Lynn Reaser, chief economist at Bank of America’s Investment Strategies Group, who was involved in the survey, conducted April 17 through May 1.

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