Greenspan forecasts possible US recession end of 2007
Former Federal Reserve Chairman Alan Greenspan said Monday in a video conference with Hong Kong businessmen that a recession in the United States economy was possible at the end of the year because the economy has grown since 2001.
"When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign," said Greenspan. "For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle." "While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown," he said. The former Fed chairman left office early last year after having run the central bank since the summer of 1987. Following the bursting of the stock-market bubble in 2000 and the terrorist attacks on Sept. 11 of the following year, Greenspan orchestrated a reduction in short-term interest rates that took overnight loans down to 1%, helping the United States overcome a short recession. His comments came as the National Association for Business Economics predicted the United States' would experience the slowest economic growth in 2007 in five years. A poll of economist conducted by the association predicted U.S. gross domestic product to grow by 2.7%, the weakest since 2002, when it grew 1.6%. The survey of 47 top forecasters found a greater expected impact from the ailing housing market this year than did the previous forecast in November. In 2006, US GDP rose by 3.4%. NABE's forecasts indicate housing construction will plunge by 14.9%, which would be nearly three times bigger than the 5.5% fall in residential construction they had projected in the earlier survey. Construction spending dropped by 4.2% for all of 2006 which proved a chief factor in the US economy's sluggish growth in the second half of last year when thousands of construction workers lost their jobs and home builders struggled with slumping sales as the five-year housing boom ended abruptly. But economic forecasters see a cushion to the sharp drop in housing: stronger than previously expected consumer spending. This index is expected to grow by 3.2% in 2007, the same as last year, the panel said. Because of the slowdown in growth, forecasters predict US unemployment rate will tick up modestly to 4.7% this year and 4.8% in 2008. The rate averaged 4.6% last year, the lowest in six years.