Odds increased of recession over the next year…
Economic forecasters are boosting the odds that the U.S. will slide into recession in the next 12 months as the housing slump deepens and the credit crisis continues.
The latest WSJ.com survey of economists, conducted in the days following the gloomy Sept. 7 employment report, pegged the recession risk at 36%, up from a 28% probability a month earlier. Three-fourths of the 52 economists responding to the recession question put the odds at or above 30% and 11 put the odds at 50% or better. The range was wide — from 5% to 90%.
”The economy has been juiced by this rapid credit expansion, and I think that’s over,” said Steve East, chief economist at Friedman, Billings, Ramsey, who put recession odds at 60%. “That’s the message of the credit market turmoil: The economy is not going to have as much high-octane fuel to run on.”
Only one out of eight economists say the credit crisis, with related market turmoil, has mostly run its course. About 60% say it is about half over, with the rest saying it is in the early stages.
The economists’ most likely case is for substantially slower growth. On average, they project fourth-quarter gross domestic product to rise at a 1.9% annual rate, well below the 2.5% they estimated a month earlier. Growth in the first quarter of 2008 is seen at 2.1%, down from an earlier average estimate of 2.6%.
Think of the easy credit of the past as steroids. This expanded the economy at a fast clip with leveraged buy-outs (LBOs) occuring left and right. Private equity firms rose to power. Wall Street had record profits and ever-increasing bonuses. More and more esoteric financial products were created, tied to assets that were more shaky than previously thought.
All bubbles eventually pop.