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US Not in Recession, Says Economic Forecast
The US economy is not in a recession nor is a recession imminent, according to the Conference Board's economic forecast released Wednesday.
Instead, said Gail Foster, chief economist of the US leading business membership and research organization, the US economy is in the weak phase of a growth cycle. "The recovery process has already begun," said Fosler, pointing to new data on retail, housing activity and employment as important signals of underlying growth.
Fosler projected a 3.6 percent growth in real GDP in the first quarter of this year, compared with actual growth of 1.4 percent in the final quarter of 2000. She also expected real GDP growth at 4.6 percent in the second quarter, 5.1 percent in the third quarter and 5 percent in the last quarter of this year.
The greatest threat to the US economy is "the sharp decline in consumer and business optimism about the future," said Fosler, who was cited twice last year by the Wall Street Journal for being the most accurate US forecaster.
While the latest Conference Board forecast is optimistic about U.S. economic growth in 2001, it is bearish on the course of interest rates. Fosler said that stronger growth than expected and inflationary pressures will cause the Federal Reserve to once again begin raising interest rates in the second half of 2001.
On Tuesday, Federal Reserve Chairman Alan Greenspan, delivering a sober assessment of the US economy to Congress, said that economic growth was close to "stalling out" at the start of the year and the United States still faces a large number of "downside risks." His comments sent a clear signal that the Fed is ready to do more to combat the threat of recession.
Referring to the US stock market, Fosler pointed out that while stock prices have come down, earnings of US businesses have continued to advance, creating a remarkable adjustment in valuations in the second half of 2000. Therefore, she said, stock prices could well advance in line with earnings for most of this year.
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