The U.S. economy is in recession, or soon to be in one, according to USA TODAY’s quarterly survey of leading economists.
Two-thirds of the 52 economists polled said the U.S. economy is in recession. Add those who believe the economy will be in recession soon, and 79 percent believe that the economy will contract at some point in 2008.
The good news: The recession will be short and shallow, and inflation will abate, say the 52 economists surveyed. In general, they expect the nation’s gross domestic product to shrink by half a percentage point in the second three months of the year.
The survey comes in a key week for economic data. The Commerce Department reports Wednesday its initial measure of gross domestic product for the first quarter. On the same day, the Federal reserve will set a target for its key fed funds rate, which broadly affects borrowing costs. In the survey, 87 percent predict the Fed will cut the short-term rate by a quarter percentage point, to 2 percent.
Most economists surveyed think the recession will be short and shallow. Unemployment, one of the hallmarks of a recession, should rise to about 6 percent, says David Berson, chief economist for the PMI Group. “That’s pretty low for a recession,” he says
A few feel the economy will weaken but not fall into recession. “A recession, by definition, is a broad-based decline in GDP that lasts more than a few months,” says Ken Mayland of ClearView Economics. Even if there were a decline in the first quarter, it’s not certain there will be a decline in the second, Mayland says.
Economists think the inflation rate, which in March was 4 percent on a year-over-year basis, according to the consumer price index, will decline throughout the rest of the year. That’s because they also think the economy will slow. “Recessions usually bring inflation down,” says Berson.
A slower economy means less demand for goods and services, which makes it harder for companies to raise prices. That doesn’t mean prices will fall, Berson cautions. It means they will rise at a slower rate.
Economists say there’s still plenty to worry about. Allen Sinai, chief global economist for Decision Economics, gives the Federal Reserve top marks for its actions but says many things are outside the Fed’s control – such as the prices of food and oil.
“We think inflation will stay sticky high,” Sinai says. “It’s driven by forces outside the U.S.” One big force: the huge demand for food and energy by India and China.
The other big worry: real estate. “Given the drop in home prices, there’s a big risk that foreclosures will go up more than expected,” says Berson.
