Greenspan: Recession Still Possible

By: Associated Press

HONG KONG -- Former U.S. Federal Reserve Chairman Alan Greenspan warned Monday that the American economy might slip into recession by year's end. He said that the U.S. economy has been expanding since 2001 and that there are signs the current economic cycle is coming to an end.

"When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said via satellite link to a business conference in Hong Kong. "For example, in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle.

"While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown," he said.Greenspan said that while it would be "very precarious" to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.The U.S. economy grew at a surprisingly strong 3.5 percent rate in the fourth quarter of 2006, up from a 2 percent rate in the third quarter.

A survey released Monday by the National Association for Business Economics showed that experts predict economic growth of 2.7 percent this year, the slowest rate since a 1.6 percent rise in 2002.Greenspan also warned that the U.S. budget deficit, which for 2006 fell to $247.7 billion, the lowest in four years, remains a concern."The American budget deficit is clearly a very significant concern for all of us that are trying to evaluate both the American economy's immediate future and that of the rest of the world," he said via satellite at the VeryGC Global Business Insights 2007 Conference.Greenspan also said he has seen no economic spillover effects from the slowdown in the U.S. housing market."We are now well into the contraction period, and so far, we have not had any major, significant spillover effects on the American economy from the contraction in housing," he said.

WHEN WILL THE CRUNCH BE OVER?

Most agree the housing crunch isn't over yet.

Housing is proving to be one of the biggest wild cards in the economy in 2007 as analysts are deeply divided about whether the worst in the downturn is over or there is much more pain to go. Only nine percent of economists say the housing decline ended in 2006, according to a USA TODAY survey of 55 economists taken Jan. 18-24. Another 42 percent said the downturn will end in the first half of the year, and 45 percent said housing will bottom out in the second half.

When housing bottoms out is key for the economy. Thus far, the fallout has been small. The economy grew at a faster pace in 2006 than in 2005 even though sales of previously owned homes fell 8.2 percent, the biggest drop in 17 years, the National Association of Realtors says. But the economy may not be able to shrug off further declines, A.G. Edwards & Sons Chief Economist Gary Thayer says. Lower energy prices and a strong job market have thus far helped consumers weather the housing downturn. But going forward, those two factors may not be big enough to offset further weakening, Thayer says.

Economist Tucker Hart Adams says the housing market won't stabilize in 2007. The combination of resetting adjustable-rate mortgages, homeowners unable to keep up with payments on so-called exotic mortgages such as interest-only loans, and other debt will lead to higher foreclosure rates and more homes on the market, she says. "It's really optimistic to think that it just took a little adjustment and everything is fine," she says. "It's one time I would like to be wrong." (USA TODAY)