As Recession Looms, Economists See Growth

The signs that point to a new recession recently have grow larger. That has not kept members of the National Association for Business Economists from forecasting moderate growth next year. Their view is out of touch with many others. Many NABE economist work for large companies, and that colors their view of the financial world.

The association’s Outlook Survey takes into account what NABE members expect will happen to the economy between now and the end of 2012. Two things stand out:

The NABE Outlook panel predicts moderate real GDP growth through year-end 2012. A 2.5 percent pace is expected during the fourth quarter of 2011, followed by a 2.4 percent growth rate in 2012, with GDP in the second half of 2012 slightly stronger than in the first half.

And:

The odds of a second recession are low. Only two of 42 forecasters predicted a decline in real GDP over the near term. As a group, the panelists saw a recession as the least likely scenario. Forecast confidence has improved, but remains low.

The association’s members have a narrow perspective as they analyze the economy differently than many experts who view the chances of GDP growth through the lenses of unemployment and housing.

Unemployment and underemployment are not weighted heavily enough in the NABE survey. When the two measurements are combined, they are still higher than 17% most months. The unemployed have a greater risk of losing unemployment benefits than they did just a few weeks ago. The failure of the supercommittee to reach an agreement on the deficit means that long-term unemployment payments are at risk as Congress looks for ways to shrink the deficit.

Housing also has shown every sign of worsening. Most of the data from Case-Shiller, the federal government and private firms like RealtyTrac show that home prices continue to fall and that the rate of defaults and foreclosures has risen. People with underwater mortgages or who own homes that they will have to leave are not consumers. This hole in consumer spending cannot be made up by the balance of the population. This is particularly true when that balance has its own concerns about jobs and income.

Large companies continue to find that they can maintain profits, sometimes through layoffs. They also can raise money in the capital markets because their earnings and balance sheets have remained strong. Economist who work for the NABE have an unrealistic view. It shows up in their opinions about the future of U.S. GDP.

Douglas A. McIntyre