Economists who participated in a recent survey largely believe high unemployment and weak consumer spending will hold back the U.S. economy into 2012 but most say a recession is not likely over the next 12 months.
Still, the overall tone from the economists who took part in the Associated Press survey is gloomy. There are fears that the European debt crisis will spread after already leading to a roughly 15% drop in U.S. stock prices in the past month.
What makes a solution so difficult is that the fear gripping investors isn't just a symptom of economic distress; it's also a cause of it. Sinking stock prices frighten consumers and businesses. They then spend and invest less. Investors respond to lower corporate sales by selling stocks, worsening the market declines.
Forty-three private, corporate and academic economists were surveyed by the Associated Press. As a group, they are more downbeat than when surveyed eight weeks ago. Among the conclusions:
* The likelihood of a recession within the next 12 months is 26%. In June, the economists had put the likelihood at 15%.
* The economy will inch ahead at an annual rate of 2% in the July-September quarter and 2.2% from October through December. Though stronger than the growth for the first half of 2011, that isn't enough to lower the unemployment rate much, if at all.
* Weak consumer spending poses a large risk to the economy. In June, Americans cut their spending for the first time in nearly two years. And consumer spending fuels about 70% of the economy.
* The unemployment rate will end this year at 9% and 2012 at 8.5%. Those rates are slightly less than July's 9.1%. But they're more consistent with a recession than a recovery.
The economists do foresee economic growth, job creation, consumer spending and home prices all rising over the next year. But the gains they expect are so slight that many Americans won't notice.
For months, the Fed and private economists had clung to hopes that a slowdown in spring and early summer would prove temporary. They initially blamed temporary factors — especially higher oil prices and an earthquake and nuclear crisis in Japan that disrupted factory production.
But the economy has kept worsening. U.S. home prices remain depressed. Job growth is weak. Workers' pay is barely rising. The economy grew at an annual rate of just 0.8% in the first half of 2011 — much less than expected.
Many are waiting with anticipation for Federal Reserve Chairman Ben Bernanke's speech Friday in Jackson Hole at a conference held by the Federal Reserve Bank of Kansas City. At last year's conference, Bernanke set the stage for the Fed's $600 billion Treasury-buying program.
But the economists in the AP survey are skeptical of the Fed's ability to improve economic conditions substantially.
Collections & Credit Risk would like to know what you think of economic forecast and how it could impact the accounts receivable management business. Contact Darren Waggoner at darren.waggoner@sourcemedia.com or at 312.777.1379.
