Analysts lining up to predict recession in 2008
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Fears are mounting that the nation is about to be thrashed by a recession.
In recent days, several heavy hitters on Wall Street have said the economy is teetering on the edge. The investment bank Goldman Sachs yesterday predicted a recession is on the way.
That forecast followed a report by Merrill Lynch, the world's biggest brokerage, which said we've already taken the plunge.
"Talk is rampant on Wall Street and Main Street that we are inevitably headed for a recession in 2008," said Stuart Hoffman, chief economist at PNC Financial Services Group, Downtown.
The credit crunch, the battered housing sector, soaring oil and gasoline prices and waning consumer confidence have ignited the fears. Last Friday's bleak jobs report for December -- which showed the weakest growth in the nation's payrolls in four years -- set them ablaze.
Mr. Hoffman, who described the current economy as "a cat on a hot tin roof that's already used up eight of its nine lives," put the odds of a recession at about 40 percent. That's also the median estimate of roughly 60 economists polled by Bloomberg business news in the last week.
"It means there's a large enough risk that caution is due in making business investments and personal investments," Mr. Hoffman said, at the same time warning that thinking too much about a recession can make it a self-fulfilling prophecy.
While some economists already are predicting a nasty downturn, Mr. Hoffman is more optimistic.
"I don't think this will be one of the more severe recessions, if we have one at all," he said.
If a recession emerges, the severity will depend on how high oil prices continue to climb, how strongly businesses curtail spending and investment, and whether the downturn spreads to many other parts of the world, he said.
The Federal Reserve is widely expected to cut short-term interest rates to help boost the sputtering economy. Lower interest rates tend to spur borrowing, spending, hiring and investment and could do the trick in fending off a recession this year, some economists believe.
Mr. Hoffman predicted that Fed policy makers would slash the benchmark Federal Funds rate by a full percentage point over the next four to five months, starting with a quarter to half-point cut at the end of this month.
That would mean lower rates for borrowers and smaller returns for depositors.
The last time the country slipped into a recession, it was fairly mild. That slump officially began in March 2001 and was over before the end of the year.
In general terms, a recession is declared when a host of economic indicators turn sour for at least six months, most notably jobs, incomes and industrial output.
Although the official pronouncement of a recession, which comes from a panel of economists, is made after the fact, consumers and experts alike will know when one hits as job losses mount, Mr. Hoffman said.
"Economists and markets will know in their gut, and then everyone will start to debate how bad it's going to be," he said.
Even if a recession hits, however, the Pittsburgh region isn't expected to get walloped.
One reason is the area's steady, if lackluster, housing sector.
"We didn't boom, so we don't bust," Mr. Hoffman said, adding that the area's growing technical and medical sectors also should cushion any fall.
"If the U.S. economy goes into a recession, maybe it pulls growth in Pittsburgh down to flat," he said. "If the economy skirts a recession, maybe Pittsburgh shows modest growth as well."
Nevertheless, he said, "It won't be a stellar year for Pittsburgh no matter what happens."
First Published January 10, 2008 12:00 am
