Economists: US Economy Seen on Verge of Recession

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10 January 2008 -- The declining U.S. housing market and the related problems in the home financing sector are pushing the American economy into recession, according to some economists.

America's most respected investment bank, Goldman Sachs, said Wednesday that the United States has entered an economic downturn, which is likely to last for about six months. Other economists, including those in the Bush administration, disagree, saying that while economic activity has slowed an outright recession can be avoided.

Economist Desmond Lachman of the conservative Washington-based American Enterprise Institute believes a recession is inevitable. "I think a recession is almost a certainty, in the sense that this credit crunch is not occurring in isolation. It is occurring at a time that the housing market is bursting, it is deflating. And as a minor detail we've got oil at over 90 dollars a barrel," he said.

The unemployment rate has risen to five percent and this week the National Association of Realtors said home sales in November fell more than expected. Despite that, association chief economist Lawrence Yun says prices have probably hit bottom. "The past four months of pending house sales essentially says that we are at the bottom or just bouncing off the bottom," he said.

Yun, who spoke on Bloomberg Television, says prospective home buyers are eager to get in the market but are waiting for prices to fall further.

Lachman of the American Enterprise Institute sees the home price decline as only the beginning of broader financial turmoil. And he says losses from the housing and mortgage crises will greatly exceeding current estimates. "I would think that the real problems are going to be in the credit cards, the auto loans, the home equity credit lines, so that the $200 billion to $400 billion (losses) is probably half of the problem. It's more likely you'll come up with a 600, 700 billion dollar figure. Now you're talking about real money. It's five to six percent of United States GDP. (Gross Domestic Product)"

A recession is defined as two consecutive quarters of negative growth. The last US recession in 2001 was short and shallow. In the years since the economy got progressively stronger. As late as September 2007 the economy was expanding at a nearly five percent annual rate. Since then there has been a marked slowdown due in large part to record oil prices and a rapidly weakening housing market.

Source: VOA News