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Survey: 30 percent believe economy will shrink

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[April 21, 2008]  WASHINGTON (AP) -- The odds the country will fall into its first recession since 2001 are rising sharply.

Thirty percent of economists now believe the economy will shrink in the first half of this year, up from 10 percent who thought this in January, according to a survey being released Monday by the National Association for Business Economics, known by its acronym NABE.

"That's a striking difference," said Ken Simonson, chief economist for the Associated General Contractors of America and the NABE's point person on the survey. The tone of the overall survey, he said, was "extremely gloomy."

Under one rough rule, if the economy contracts for six straight months it would be considered in a recession. Many economists and the public believe we are in one. Even Federal Reserve Chairman Ben Bernanke recently acknowledged, for the first time, that a recession is possible.

Forecasters "were notably downbeat about their own companies and the overall economy," Simonson said.

The majority of forecasters polled -- 51 percent -- thought the economic growth during the first half of this year would clock in between zero and 1 percent, which would still mark a feeble showing. Sixteen percent pegged growth in the first half at between 1 and 2 percent, while only three percent put it at between 2 and 3 percent. No forecaster believed growth during this period would exceed 3 percent.

The economy nearly stalled in the last three months of 2007, growing at a pace of just 0.6 percent. Many analysts say the economy's normal growth rate should be just over 3 percent. The government will report on the economy first-quarter performance at the end of this month, while the second-quarter's results won't be known until late July.

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A trio of crises -- housing, credit and financial -- have hit the country, crimping spending by people and businesses alike. And, that's weakening national economy activity.

Against that backdrop, 70 percent of the economists said they are more pessimistic about the economy's outlook than just three months ago.

And, 45 percent said they expect a substantial slowdown in housing in the next six months. The housing slump -- which has dragged down home values and led to record-high home foreclosures -- is the biggest weight on the economy.

Thirty-nine percent said harder-to-get credit has negatively affected their businesses, up from 26 percent in January.

The one-two punch of weakening economic conditions and soaring prices for energy and other commodities is squeezing companies' profits margins, the survey says.

Fighting to limit damage to the economy, the Federal Reserve has slashed interest rates and taken a number of extraordinary steps to help financial institutions overcome credit problems, which had threatened to paralyze the entire financial system.

Interestingly, 69 percent said the Fed's action had no impact on their businesses.

The survey, based on the responses of 109 NABE members, was conducted between March 24 and April 8.

[Associated Press; By JEANNINE AVERSA]

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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