Fear of U.S. recession could help drive one

By Joanne Morrison - Analysis

WASHINGTON (Reuters) - Fear among U.S. consumers and businesses that the world's richest economy could go into a recession, or may already be in one, could help push the economy over the edge and bring on an even deeper, longer downturn.

In the final three months of 2007, the economy screeched to a near standstill, dragged down by what many economists say is the worst housing slump since the Great Depression.

As a result, talk of recession has been on the rise among Main Street people as well as economists, the media and a number of high-profile analysts, including former Federal Reserve Chairman Alan Greenspan.

With the housing market showing no sign of reaching bottom and mortgage-related losses mounting at Wall Street firms, many experts wonder if all the talk may add to the tendency of people to dampen their economic activity and spend less.

In economic circles, the concept of self-fulfilling prophecies is not new. It is a facet of what classical economist John Maynard Keynes called the "animal spirits" that dictate consumer behavior and drives economies.

Already there are signs of consumers getting gloomy. The Conference Board said consumer confidence slumped to its lowest level in five years. A Reuters/Zogby poll released last week that found most Americans now expect a recession in the next year.

Consumer caution comes at a tough time for an economy already lumbering under the weight of a housing downturn and a critical time for the government's plan to boost spending.

Many Americans will soon have extra money in their pockets from tax rebate checks that are a part of an economic stimulus package President George W. Bush recently signed into law.