"Consumers still face what could be a perfect storm," they wrote. Job growth has slowed, home prices will fall further and energy prices are high. <=========== This is what I am talking about! It is obvious that consumers spent over their heads with home mortgages, now with higher energy and other costs.
Mild recession likely, Morgan Stanley says By Rex Nutting, MarketWatch Last update: 5:18 p.m. EST Dec. 10, 2007
WASHINGTON (MarketWatch) -- The U.S. economy is likely to slip into a mild recession in 2008, said economists at Morgan Stanley, which is the first major Wall Street firm to predict a recession.
Domestic demand is expected to fall 1% annualized over the next three quarters with zero growth in gross domestic product and a 5% to 10% drop in corporate earnings, said chief economist Richard Berner and U.S. economist David Greenlaw in an updated forecast on the firm's Global Economic Forum Web site. For the full year, Morgan Stanley sees 1% growth.
The new forecast from Morgan Stanley is significantly more pessimistic than the average forecast of top economists. Other economists are forecasting growth of 2.2% in 2008, according to the Blue Chip survey of 51 economists, also released Monday.
The Federal Reserve will likely cut the federal funds rate by a total of one percentage point over the next seven to nine months, reacting to a tightening in credit conditions, a slump in business capital spending and a slowdown in global growth, Berner and Greenlaw said. Read more.
"Those negatives sound like the recipe for a serious recession, so why do we think it will be mild?" Berner and Greenlaw wrote.
"Although it is slowing, global growth is still strong, and we expect that net exports will add about 3/4 percentage point to growth through the end of 2008. In addition, we think that corporate capital and hiring discipline in this expansion mean that there are no business-investment or labor-market excesses to unwind, adding to U.S. economic resilience."
"Consumers still face what could be a perfect storm," they wrote. Job growth has slowed, home prices will fall further and energy prices are high.
There's little prospect for a recovery in housing anytime soon, they said. "We think overall housing starts will run below 1 million units in each of the next two years -- a level not seen in the history of the modern data since 1959."
The two economists acknowledged that "things may be better on Main Street" than they are on Wall Street, where firms have been forced to take tens of billions of dollars of write-offs on securities based on mortgages. But "downside risks still dominate." End of Story
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