U.S. economy seen shrinking in 1st half 2008: Blue Chip
WASHINGTON (Reuters) - The U.S. economy will likely contract during the first half of this year as a recession becomes more likely, a growing number of economists surveyed for the Blue Chip economic forecast predict.
The dismal outlook comes amid expectations of weaker consumer spending and the first decline in corporate profits since 2001, when the economy last fell into recession.
Prior to last week's dismal employment report showing the economy in February lost the biggest amount of jobs in nearly five years, roughly 40 percent of the economists surveyed in the closely watched forecast predicted a downturn during the first half.
"Indeed, we suspect that based on what we have heard and read from some panelists since our survey, at least 50 percent now believe the economy will shrink during the first half of this year," the newsletter wrote in the forecast, released on Monday.
Those economists who believe the economy will still skirt a recession have nonetheless downgraded their growth outlooks.
The latest Blue Chip consensus forecast -- taken two days ahead of the March 7 unemployment data -- called for the economy to grow at an annual rate of just 0.1 percent in the first quarter and by 0.5 percent in the second quarter.
These estimates are down substantially from forecasts a month earlier.
For all of 2008, the economy is expected to grow by 1.5 percent on a year-to-year basis, which is 0.2 of a percentage point lower than estimates made a month ago and more than a full percentage point lower than forecasts made last September.
"Recent data suggest the U.S. economy is in or teetering on the brink of a recession," the newsletter wrote.
Much of the expected decline in growth will stem from weaker consumer spending, which accounts for roughly two-thirds of economic output. The economists polled do not expect tax rebates and other measures in a multibillion stimulus package to have a big impact on growth.
"Consumer spending is expected to be especially subdued this year despite passage of the federal tax rebate program that will put a bit more than $100 billion in household pocketbooks beginning in May," the newsletter wrote.
In the wake of the last recession in 2001, consumers spent roughly a third of the tax rebates issued them, but with heavy debt, inflation pressures, rapidly falling home values and fear of job security, the bulk of consumers are expected to use the tax rebates to pay down debt or save, surveys such as the Reuters/Zogby poll have shown.
The Blue Chip survey projects that consumer spending adjusted for inflation will grow only 1.5 percent on a year-to-year basis, which is 0.2 of a percentage point less than estimated a month ago and 0.6 percent of a point less than forecast in January.
At that pace, spending would be half what it was in 2007.
BUSINESS SPENDING WEAKENS Continued...
