No growth seen in early 2008 for US economy-San Francisco Fed

By Ros Krasny

CHICAGO, April 14 (Reuters) - Hit by rising unemployment, weak consumer spending and a decline in confidence, the U.S. economy is likely to see "essentially no growth" in the first half of 2008, said an economist at the San Francisco Federal Reserve Bank.

"There is a fairly high probability that the current quarter could be negative," Glenn Rudebusch, associate director of research, said in the San Francisco Fed's latest "FedViews" newsletter.

Still, Rudebusch echoed comments from several other Fed officials in calling for a moderate recovery to start in the second half of 2008 as the housing sector stabilizes and the financial crisis eases.

Earlier fiscal and monetary policy actions should also begin to kick in, he said.

The bank's current forecast is for quarterly GDP growth slightly below 2.0 percent in the third and fourth quarters, picking up to about 3.0 percent by the second half of 2009.

Recent data from the labor market, notably three consecutive months of shrinking nonfarm payrolls, "looked remarkably similar to the first few months of the recession in 2001," Rudebusch said.

"Conditions have deteriorated at a pretty rapid pace over the past few months," he said.

Rudebusch said it will be hard to judge whether the current slowdown technically qualifies as a recession.

"One often hears about the rule of thumb that two negative quarters define a recession, but the last recession had three negative quarters but not two in a row," he said. "In the past, just one quarter of negative GDP growth has often been associated with a recession."

Rudebusch said the other key question for the U.S. economy is whether core inflation will remain contained.

"Higher commodity prices pose some upside risk, but the slowdown in the economy should restrain future inflationary pressures," he said, adding that "core inflation will remain around 2.0ercent this year and next."

That surge in commodity prices curtails real income and spending at the same time it could pass through to core inflation, he said.

Rudebusch said consumer sentiment is "very gloomy" and consumer credit appears to be constricted, contributing to a drop in the purchase of big-ticket items such as automobiles and light trucks.

(Reporting by Ros Krasny)