The New Year Puts Economists in a Bad Mood

Posted by: Ben Steverman on January 15, 2008

I just finished a story where I spent two days talking to economist after economist, and I’m a bit surprised at what I heard: Unanimous gloom.
Some of them thought the U.S. would avoid recession, but even those optimists were expecting a painful period of slow growth. They pointed out that even 1% or 2% growth can be excruciating, especially if the number of Americans without jobs keeps moving higher and higher.
One reason for the pessimism? There are very few factors on the horizon that could help the economy bounce back quickly. One possible positive factor is the impact of interest rate cuts that the Federal Reserve began last fall. Another is strong economic growth overseas, which is helping exports.
But even the Fed acknowledges it will have to keep cutting rates this year, and the effect of those deeper cuts won’t be felt for another year or so. Also, while Asia and other parts of the world are still doing well, there are some signs that the world economy, including Europe, is slowing overall. That could sap the strength of the one factor that’s been dragging the economy forward despite all the bad news (like high energy costs and the housing and credit crises).
On the bright side: Many economists seemed to think the Fed and the strong international economy would eventually do the trick. The result probably won’t be a return to strong growth, but at least most expect the recession , if it comes, to be “short and shallow.”
Still, few expect 2008 to be much fun. That’s one reason, with 11 and a half months to go, the S&P 500 is down almost 6% for the year.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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