Economists cut back predictions for growth

Panelists with the National Assn. of Business Economics trimmed their outlook for residential investment and marked down expectations for productivity growth in 2008, according to a survey of economists released Monday.

The “panelists see a reduction in economic growth across major spending categories,” said Ellen Hughes-Cromwick, the association’s president-elect and chief economist at Ford Motor Co.

The panel trimmed its earlier view for a rebound to above-trend growth in 2008.

Real gross domestic product, the broadest measure of economic output, is forecast to advance 2.2% in 2007 against 2.3% in the group’s survey in May.

Projected 2008 growth was cut to 2.8% from 3.1%, with reductions concentrated in the first half.

“Over 60% of the respondents cited recession as the major risk facing the economy over the next year, while only a third cited inflation as the greatest problem,” the association said.

Those most concerned about a recession tended to cite problems in the sub-prime mortgage market and potential declines in home values as likely triggers.

Still, many thought that recession, while a risk, could most likely be avoided -- with some help from the Fed.

The survey, reflecting the estimates of 46 economists, was taken Aug. 2 to Aug. 23, before last week’s dismal job report.

That period began with relative calm before descending into a global credit meltdown capped by a cut to the Fed’s discount rate and the issuance of a Federal Open Market Committee statement that effectively shifted the bank to rate-cutting bias.

Only a third of respondents said “domino effects” were underway where losses in the sub-prime loan market would spread to many other sectors.

The panel trimmed its outlook for 2008 consumer spending growth to 2.5% from 2.8% and also cut its estimate for business fixed investment.

Housing starts for 2008 were forecast at 1.4 million units, down about 100,000 from the May survey.