Could housing bust derail economy?

A survey of 279 corporate chief financial officers in early December found 30 percent were “quite” to “very” concerned about recession next year, almost twice as many as were worried about inflation. And 59 percent of those surveyed described themselves as at least moderately concerned about a recession. Those levels of concern were a bit below three months earlier, though.

Paul Kasriel, chief economist with the Northern Trust in Chicago, puts the chance of a recession as high as 45 percent next year, and he thinks that only a series of interest rate cuts by the Fed starting in the spring will help prevent a downturn. A recession would be the first since 2001.

“The goods producing sectors - manufacturing, construction - still represent 45 percent of GDP,” he said. “These are the part of the economy that move before the economy as a whole goes into recession and right now they’re moving south.”

Bob Brusca of FAO Economics said he worries about surveys of manufacturing activity from different Federal Reserve banks, such as those in Philadelphia and Dallas.

“Not all declines in manufacturing lead to recession. But if the economy is going to go down, it’s going to be led by manufacturing and construction,” he said. “I’m not worried about a recession yet, but I’m not willing to dismiss it either.” He puts the chance of a recession in 2007 at about 25 percent, up from a 10 percent chance a few months ago.

But others look at continued strength in consumer spending, even at the end of a year that saw record energy prices, coupled with low unemployment and rising exports and they say the chance of a recession next year is pretty slim.

Popularity: 1% [?]