Recession fears on the rise


NEW YORK (CNNMoney) — There are growing warnings that the United States could fall into a new recession, even with its debt ceiling crisis finally behind it.

Economists have been ringing alarm bells after disappointing readings on some key economic indicators, including those measuring consumer spending, manufacturing, job cuts and gross domestic product.

And this Friday’s closely-watched jobs report isn’t likely to be much better. Economists surveyed by CNNMoney forecast a gain of only 75,000, with unemployment expected to remain at 9.2%.

Investors are increasingly worried about the state of the economy, sending stocks into a slide. The Dow Jones industrial average opened lower again Wednesday, the day after the blue chip index tumbled 266 points, while the SP 500 slipped into negative territory for the year.

Martin Feldstein and Larry Summers, two leading economists from opposite political camps, both made comments Wednesday suggesting a significant threat of a new recession.

Feldstein, a top economic adviser to both President Ronald Reagan and President George W. Bush during the 2000 election, told Bloomberg that he believes the country now faces a 50% chance of a new recession.

“This economy is really balanced on the edge,” he said. “Nothing has given us much growth. The economy has been flat to down since the beginning of the year.”

Feldstein’s current outlook is similar to his view in January 2008, when he was one of the first economists to declare the start of the recession that would last more than two years.

Feldstein is also a former president of the National Bureau of Economic Research, and he serves on the committee of that group, which makes the official determination for when recessions begin and end.

He said housing continues to be a major drag on the economy and that all the policy responses so far have been a failure.

Summers, who was Treasury Secretary under President Clinton and the first director of the National Economic Council under President Obama, wrote an opinion article for Reuters arguing that the economy is already at “stall speed.” Summers said that without a policy response to the current economic weakness, there is a one-in-three chance of a new recession.

“The United States’s current problem is much more a jobs and growth deficit than an excessive budget deficit,” he said.

He argued that extending the current payroll tax holiday due to expire at the end of this year, as well as an extension of unemployment benefits and more spending on maintaining infrastructure, are all needed to spur greater economic demand. To top of page

Leave a Reply